German savings banks may buy debt to gain political favour, ECB paper says

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European Central Bank

German savings banks increase their acquisitions of debt issued by regional and local governments when new administrations come into office, in a move possibly designed to gain the favour of politicians, a paper published by the European Central Bank says.

These misallocations of capital have damaging effects on the economy, as investment in public debt crowds out activity in the private sector, says Alexander Popov, the author of the research. Additionally, “if banks hold more government debt

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