It is France’s long-term interest rates that would rise if Germany stimulated its domestic demand

Germany now has considerable excess savings (a fiscal surplus, a very high household savings rate) while France has a savings shortfall. This leads to a structural external surplus and net external assets in Germany and to a structural external deficit and net external debt in France. For non-resident investors in financial assets issued in core euro-zone countr ies , there is therefore a scarcity of German assets, leading to: First , very low long-term interest rates in Germany; Second , a switch by non-residents to French bonds because of the shortfall of available German bonds, which also drives down long-term interest rates in France despite the country’s savings shortfall: France benefits from the scarcity of German assets. If there were a policy to stimulate domestic demand in Germany, which is often asked of Germany, its external surplus would reduce and German assets would become less scarce for non-residents. The result would be a smaller switch to French bonds and, given France’s rising external debt, a rise in France’s long-term interest rates.