Low interest rates? What low interest rates (3 graphs)! The BIS is very wrong about the Euro Area.

Is the BIS right to warn about the long run dangers of long-term ultra accommodative monetary policies? Yes. But the BIS is wrong about the Eurozone. Interest rates policies in the Eurozone are not ultra-accommodative. They are only starting to become normally ‘accommodative’ – and not even for everyone. Also, not that long ago (the summer of 2012), ultra tight monetary policy almost led to the disorderly break up of the Euro Area. Eurozone monetary policy has not (repeat: not) led to ‘ultra accommodative’ interest rates and we’re only starting to recover from grave policy mistakes which induced tightening in the midst of the most severe post WW II recession to date.

* though banks have been paying low rates for quite some time now (and even these were increased, back in 2011…)
* it is has only been since some months that the same holds for the governments of, for instance, Spain, Italy and Greece. Rates paid by these countries were, totally unnecessary, immorally and destructively high and a main cause of the present Euro Area mess (graph 1 – as can be seen government rates were 7%-points higher in Italy than in Germany – while at that time inflation and government debt in both countries was about equal

Graph 1. Spread between italian and Spanish government rates and German rates. Courtesy: Erwan Mahé.

).

* also, many households and companies are still paying high nominal rates while real rates have increased for existing contracts, because of the decline in the medium term rate of inflation. This is not just true for companies in the periphery countries (graph 2) but also for, for instance, households in the Netherlands (graph 3). interest rate on existing mortgages did not really decrease while rates on new mortgages are barely lower than during the hight of the bubble, in 2005. No ‘zero lower bound’ over there! There is some slow and belated movement towards lower rates, but the idea of ‘ultra accommodative interest rates’ is a total joke. The BIS should know better.

Graph 2. Interest rates for non-financial companies in the Eurozone periphery, Germany and France (source)

Graph 3. Household mortgage rates, the Netherlands

Also,

* inflation is at a historical low

* unemployment is at a historical high
* Euro Area credit growth is negative  (table 1, line ‘4’, in the monthly ECB publication on money and debt).
* house prices are declining in many Euro Area countries and rises are limited in almost all other countries (caveat: recent Euro Area members Estonia and Latvia do show ‘Irish housing boom-signs’ but the Baltic states (and Romania and Bulgaria) really need better houses – prices increases should and can be limited (land tax) but building a lot of houses is not always a bad thing, though Irish and Spanish style building booms should be prevented (zoning, land tax))
Show me the bubble, please.