20151208-NATIXIS-The_ECB_is_keeping_interest_rates_below_the_growth_rate_Help_for_deleveraging_or_an_incentive_to_borrow__12页_1mb

FLASH ECONOMICS: Summary

Core Content

This document, titled "The ECB is keeping interest rates below the growth rate: Help for deleveraging or an incentive to borrow?" from FLASH ECONOMICS No. 945, dated December 8, 2015, analyzes the impact of the European Central Bank's (ECB) highly expansionary monetary policy on economic behavior in the euro zone. The key focus is on the dual effect of low interest rates relative to economic growth: facilitating deleveraging or encouraging further borrowing.

Main Viewpoints

• Monetary Policy Impact: The ECB's policies, including quantitative easing and zero short-term interest rates, have driven interest rates below growth rates in the euro zone. This has created a situation where the cost of borrowing is lower than income growth, potentially influencing both private and public sectors differently.

• Dual Effects on Borrowing Behavior:

  • Deleveraging: Lower interest rates can ease the process of reducing debt burdens, leading to improved solvency and reduced risk of debt overhang.
  • Increased Borrowing: Conversely, low rates may incentivize more borrowing, increasing the risk of future solvency crises.

• Sectoral Analysis:

  • Private Sector: Deleveraging has continued in Germany, Spain, and Italy, but not in France.
  • Public Sector: Public debt has continued to rise in Italy and France, but not in Germany.
  • Corporate Sector: Corporate debt has increased in France and the euro zone as a whole, while investment trends show mixed results.

Key Information

Interest Rates and Growth

• Interest rates in the euro zone are currently below growth rates.
• The 10-year interest rate in Italy is the only exception to this trend.

Household Debt

• Debt Trends: Household debt has declined in Germany, Spain, and Italy, but not in France.
• Savings and Investment: There has been no significant drop in the savings rate, but an increase in housing investment in Germany, Spain, and the euro zone as a whole.

Corporate Debt

• Debt Ratios: Corporate debt has increased in France and the euro zone.
• Investment and Share Buybacks: Corporate investment has increased in Spain and the euro zone, but share buybacks have not occurred in any country.

General Government Debt

• Public Debt: Public debt ratios have continued to rise in Italy and France.
• Fiscal Deficit: Fiscal deficits in France and Spain have not stabilized relative to nominal growth, indicating continued borrowing.

Conclusion on ECB Policy

• The ECB's decision to keep interest rates below growth rates has led to a moral hazard, particularly for governments.
• While it has supported deleveraging in the private sector, it has also encouraged continued borrowing in the public sector, increasing the risk of future solvency issues.

Disclaimer

• This document is intended for professionals and qualified investors.
• It is strictly confidential and must not be disclosed to third parties without prior written consent from Natixis.
• The information provided is for informational purposes only and does not constitute a personalized investment recommendation.
• Natixis does not guarantee the accuracy, completeness, or reliability of the information and does not provide investment advice.
• The document and its attachments are based on public information and may include results from quantitative models, which represent potential future events.
• Natixis has implemented procedures to prevent conflicts of interest and ensure the independence of its research.
• The document is not an offer or solicitation for any transaction and does not represent an official confirmation of any transaction.
• The views and recommendations expressed are those of the authors and do not necessarily reflect the views of Natixis or its affiliates.