Financial policy 1997 - or:
are we getting fooled on a grand scale?


Tax changing policy, tax cutting, tax increases, no pension funds, introducing a new currency, higher dues and taxes – they all come down hard on the purse and one’s mood and alienate the citizens. Can one then still behave correctly at all, being a person concerned? Can the average citizen still overlook the future developments at all and yet keep a clear head when doing so?

Allowedly: the idea of a unique European currency as an opposite pole to the US dollar and the Japanese yen might sound nice; but it has hardly convinced a third of all Germans up to now. One reason is that we have gotten to like our D-mark, for it is one of the toughest and most stable currencies in the world.

So what is the cause of introducing the Euro, if it will come at the 1st January 1999 as it is planned? How does it affect our personal capital, our savings, our life insurances, our retirement pensions, our credits and bonds? How does it affect economy, our income, our salary or our turnover?

Question upon question; questions which we never asked ourselves perhaps.

So let us view some facts in detail:

Critics of the Euro are warning from introducing a currency in a rush, which hasn’t held out against any practical test yet. The experiment is – at best – risky, if not even dangerous, they say. Skeptics say it is too early and only the die-hard “europtimists” appreciate the form and event of the introduction.

So there is a good reason for the question; why is our government really so much in a rush about it? At least one reason is obvious: putting off the euro introduction would get the discussions really started. It would bring the skeptics on scene and bring to light the valid objections. In the run-up to the next votes this could not only bring about the end of the governing coalition CDU/CSU and FDP – or even worse – it could leak a lot of votes to the extreme camps.

This means: the chancellor, finance minister and other politicians are under pressure to succeed. They want the euro in 1999 because they know that after that they won’t have a chance for a long time to enforce the European currency.

The chancellor and his people, just as the governments of the other concerned countries, are currently working hard to fulfill the criteria – or in special language the convergent criteria – for entering the currency union. For instance, the inflation rate is being kept low by (amongst others) low interest rates (not the other way around!). No one really knows, or wants to know, what the development of the inflation rate will be after introducing the euro.

The national debt needs to stay within the realm of 60% of the gross national product, which shouldn’t be too hard to show mathematically by hidden households and shifted expenses.

But how should national debt actually be decreased if on the other hand the tax income from the wage tax and income tax is getting lowered? So what is the tax cutting all about? The truth is: the state cannot afford to really decrease tax receipts!

That means in plain language: the tax receipts due for the income tax need to be distributed elsewhere and so be burdened to all citizens. The value added tax is the favorite: based on the motto “same level for all” we are heading onto a customization to European level in the next ten to 15 years – so max (and in the worst case) an increase up to 25% (as it is e.g. in Denmark already).

Another favored income source is the petroleum tax – so let’s not be surprised if we need to pay more than 2 DM for a liter of premium unleaded. The 3-liter-car is a small comfort to this, for it is so expensive when being purchased newly, while the “good old” used car is only worth a fraction of its original price.

Because “a bit more of all” is a little easier to enforce and more beneficial than “too much of too little”, the government has paved its way once more to fill the holes of national budgets at the cost of the general public.

But that is not all: for if one considers the real dimension of the national debt one realizes within short term that also this bill will remain, surely until the introduction of the euro, and that the policy then needs to take new (and serious) measures. Because:

The new indebtedness of the state for 1997 will be, based on the budget, about 87 billion DM. But the state already has to come up with 55 billion DM for interest this year in order to pay its high debt.

What do you then think of the following calculation as a comparison?

Imagine you would need to pay 55 thousand DM interest for credits every year. Since you are insolvent and still need another 32 thousand DM for the defrayal of your charges, you take another credit of 87 thousand in order to fill the gap. How many years could you play this “game” until the financiers would shut off your supply? Certainly not even two or three years. But nevertheless our government does: the game to finance interest by new indebtedness is being carried on elatedly – how much longer?

No one in the government dares to admit a declaration of bankruptcy. And even worse: the average politician today does not even have the courage to tell his fellow citizens the truth. The vote of the elector is more important to him. And so the policy of rhetorical obfuscation continues to yield peculiar results.

But if one has paid even minor attention in one’s math classes in school, one will be able to easily calculate what is expecting us in the coming years:

The introduction of the euro, increasing the value added tax, the large tax reform, the increase of the petroleum tax and cancelling tax advantages, all to a larger or smaller degree. Increasing unemployment benefits and pension plans as well as other social contributions, public fees, drastically increasing prices in regards to waste and sewage and higher health-related costs are an additional burden to everyone.

We all have to bite the bullet in this regard. National debts of over two trillion DM do not only want to be fed with interest and compound interest, but they also need to be paid back some day – be it in fifty or in a hundred years.

And did you know that the costs for introducing the new currency are getting estimated to about 30 to 50 billion DM? Another state expense of a magnitude that we cannot even imagine anymore. Another deep hole in the “finance jungle” of our politicians, which the tax payer needs to feed.

The bitter result? We all will need to foot the bill. We, our children and their children.

So what do we recommend to you now?

Provide for a risk. Acquire assets which are mostly protected against all these dangers. A primary part of this is a rented out property in a good and demanded inner-city-location.  Because: people will always need a roof above their head. Creating new living space costs an enormous amount of money. Many incentives to save taxes when building new properties have been cancelled. That means that there will be much less private capital invested into new buildings.

The result: there will be a shortage of living space again! The current need of about 1,5 million missing apartments is not being met. To the contrary, the amount missing goes up again.

This again will bring up the rents, strain the public purse and generally make the real estate prices go up – especially in the field of existing properties in good locations.

Thus existing living space remains one of the most wanted goods in our country. The rented out freehold flat and the classical apartment building undoubtedly form a secure, stable and value-increasing capital investment.

Thus our urgent advice is: invest in property now!

And in regards to financing: not just the low interest rates are a reason to buy now. Also consider that if someone takes a D-Mark credit now to purchase a property, he will pay back the dues in euro. Based on experts the inflation rate will be clearly higher than today after the introduction of the euro. In plain language this means that your debt will be partially amortized by the inflation (for inflation also devalues your credits).

And you have another advantage on your side: starting 1999 you will receive your rental income in euro, not DM. And rents will be paid in line with the market in any case, no matter with what currency. All that needs to be made sure is that you purchase a property in good locations and in good cities.

Even though the general conditions on the state’s side are getting worse: freehold property secures the future of your funds! Real property remains the most valuable form of investment in our country.

It cannot be stressed enough:

Being purchased smartly and with reason, real property is the best capital investment that our country has.

Don’t hesitate any longer. Buy now! The real estate market has already surpassed its trough; the prices are starting to go up again. In Duesseldorf alone the market has increased by about 5-10% in the favored areas again. But those who hesitate now will be left out dry later! And starting 1998 the market prices will clearly start to rise again.

Seize this favorable moment. Acquire real property now! Also your children will thank you for it.


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