Draghi: low rates due to lack of investment – Il Sole 24 Ore

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This article was published May 2, 2016 at 16:48 hours.
the last change is the May 2, 2016 at 21:22 hours.

We need more investment. This is the only way to restore momentum to the global economy, and that of the eurozone. The President of the European Central Bank Mario Draghi, in a speech at the Annual Meeting of the Asian Development Bank in Frankfurt, called Addressing the causes of low interest rates , has indicated in the excess of savings over investments economic activities in the cause of the current economic difficulties.

the low interest rates are only a symptom of the imbalance. Draghi had already expressed this in the past in response to German pensioners – a bit ‘, and again, the implicit interlocutor of the whole matter – which rightly are struggling for the minimum yields, often at negative levels. “Consumption during the retirement age – has recognized Dragons – depend precisely the returns you get from these savings.” But is not the monetary policy to keep interest rates low: the ECB can influence them, but only in the short term, and marginally.

It would be a mistake, he added Draghi, if monetary policy did otherwise. Low rates indicate an excess of savings, linked to demographic trends – the population is aging and people put resources aside for the period, often longer, in which they do not work – and a lack of investment for the reduction of public capital expenditures “in a context of high debts’ and for the low productivity, which does not guarantee great returns. According to a study – the Bank of England – these factors “may explain about 400 basis points from 450 basis points of the decline in real interest rates in the last 30 years.” Strong Asian savings – the saving glut suggested by Ben Bernanke, then chairman of the Fed – have contributed to these developments.

Monetary policy must therefore stimulate investment; and it can do so only by taking very low rates. “If the central banks fail to do so, if they were the rates (nominal, ed) at levels too high compared to their real levels, investing would not be attractive because the cost of credit would be higher returns. The economy will remain stuck in recession. Since the high savings are a long term phenomenon – the population, for example, will remain “old” for a long time – this is the only way. In Euroland, to reduce uncertainties, however, you can do something additional: “Reform of the governance of the euro that can remove persistent doubts about his future.

<'p> So there is no conflict between creditors and debtors, he said Draghi. “It is important to appreciate the fact that savers, any financial assets they hold, have a law on the output of the economy: their interest is therefore the same economy as a whole.” First, monetary policy will start growth before the rates will rise again; and ask for a smaller role for central banks, or a shorter period of monetary expansion “necessarily implies a greater role for fiscal policy.”

What can, meanwhile, savers? Dragons wanted to answer this important question: should diversify. “The US investors holding one-third (33%) of their financial assets in the form of shares, while the corresponding numbers for the Italian and French families is about one-fifth (20%) and those in Germany a tenth (10%). On the contrary, German households account for almost 40% of their assets in the form of cash or deposits and the French and Italian around 30%. The corresponding number for US households is less than 15 percent. “

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