Stiglitz, Joseph, (2016), “What’s Wrong With Negative Interest Rates?”, Social Europe, 13 April
The fact is that the eurozone’s structure and the ECB’s policies have ensured that banks in the underperforming countries, and especially in the crisis countries, are very weak. Deposits have left, and the austerity policies demanded by Germany are prolonging the aggregate-demand shortfall and sustaining high unemployment. In these circumstances, lending is risky, and banks have neither the appetite nor ability to lend, particularly to SMEs (which typically generate the highest number of jobs). A decrease in the real interest rate – that on government bonds – to -3% or even -4% will make little or no difference. Negative interest rates hurt banks’ balance sheets, with the “wealth effect” on banks overwhelming the small increase in incentives to lend. Unless policymakers are careful, lending rates could increase and credit availability decline.
Relevant Posts
- Rachel, Łukasz, D. Smith, Thomas, (2016),“Towards a global narrative on long-term real interest rates”, Voxeu, 15 January
- Wolff, Guntram, (2015),“The ECB and politics in an era of low interest rates”, Bruegel publications, 25 November