Abstract In the aftermath of the Great Recession and during the debt crisis in the euro area yields on German federal bonds have been exceptionally low. This analysis tries to calculate the profits that the federal government makes due to these low yields. The interest payments that are due to emissions of bonds and bills made between 2009 and 2012 are approximated and compared to several benchmark scenarios. Compared to the mean yields of the years 1999-2008 profits of the federal government are quite high (68 billion euros). Application of yield curve models show that most of these profits are due to the macroeconomic conditions in the euro area and to low central bank rates. To a much smaller extend these profits are due to flight into safety, which, however, has become more relevant recently.
Fiscal policy and the Great Recession in the Euro Area