Graph of the day. Investments in the Eurozone, 2000-2013

Despite record low-interest ECB-rates investments in the Eurozone are plummeting. To an extent this is caused because low ECB interest rates do not always translate into low-interest rates for households and non-financial companies. Even in the Netherlands mortgage interest rates, though declining, are still higher than in 2005. Let alone the crushing rates in southern Europe, ‘crushing’ as inflation in these countries is between 2 to 6% lower than a few years ago while interest rates have barely declined. Aside – austerity started during the second half of 2010.

For another part low-interest rates don’t work because we’re in a balance sheet recession. Debts still are at record levels, unemployment is rising, the percentage of non-performing loans is increasing and real wages are declining, a situation which in a number of EU countries (Ireland, Greece, to an extent Spain) was and is exacerbated by extreme capital flight. Which, of course, leaves us with the question how we can make up for the more than 1.000,– per Eurozone inhabitant per year decline in demand caused by lower investments (take care: the graph shows quarterly data!). Should we, as the Troika likes to tell us, cut government expenditure? Or slash wages? Or increase VAT rates? Aside – net exports of the Eurozone are at the moment increasing by leaps and bounds but even this is not enough, by a long shot, to make up for the decline in domestic demand.

You can read here a new Levy institute study which predicts that unemployment in Greece will go up to 34% if keep doing this (this model is ultimately based upon the national accounts which means that it, unlike the DSGE (Diederik Stapel General Equilibrium) models, models ALL relevant financial streams and their interactions in stead of just an ad hoc sample of these.