Questioning Lagarde as Gross Interest Income in Germany Heads Towards Zero


Thanks to negative interest rates, Germans interest income has plunged towards zero.

Counterproductive Interest Rate Policy

Eric Dor, Director of Economic Studies at the IESEG School of Management in Paris emailed an article with some interesting charts regarding the Counterproductive Interest Rate Policy of the ECB.

What follows is a guest post by Dor, with my comments at the end. I added or changed some subtitles.

Collapse of Interest Income in Germany

The extremely accommodating monetary policy of the ECB has had huge redistributive consequences. The disposable income of savers has been hit by the collapse of the average return on their accumulated wealth invested in interest products. Low interest rates have benefited borrowers. By boosting asset prices, the decline of interest rates has also favoured the small segment of wealthy households who own securities, potentially increasing inequality.

ECB Monetary Policy

The ECB has used various instruments to push down market and bank interest rates in the euro area. The instruments used by the ECB are its traditional key interest rates, hereafter summarized by the deposit facility interest rate, recent unconventional tools like massive asset purchases known as QE, and forward guidance about the expected path of its policy. All these instruments have a decisive impact on market short term and long term interest rates, as shown on the following chart.

Money Lost and Gained

It is interesting to compute what German savers have lost by comparing their effective interest income to a hypothetical situation where they would have remained at their level of 2012. It is easily computed by adding up the difference between effective gross interest income and their level of 2012.

The monetary policy conducted after 2012 has implied a cumulative loss of gross interest income of euro 158 billion for German households until 2019.

Of course, the monetary policy has benefited German borrowing households. After 2012 and until 2019, German borrowing households “saved” a cumulative 99 billion of interest expenses. It is computed by adding up, for all the years after 2012, the difference between effective interest expenses and their initial level.

The net result is a loss of euro 58 billion to German households.

Counterproductive Policy

The ECB has been engineering an overall decrease of interest rates hoping that cheap credit opportunities would lead households and companies to increase their spending. The problem is that this policy may lead to the opposite result, if households decide to offset declining returns on savings by saving more.

Evidence shows that it is what happens in Germany. The saving rate of households has been continuously increasing since 2014.

German Savings Rate

Banks Harmed

Low or negative interest rates are also decreasing the net interest income of banks. It threatens their profitability perhaps decreasing their supply of loans to the private sector.

End Dor Article

On August 30, I commented Lagarde Praises Negative Rates, Study Shows They Reduce Lending

This common-sense report by Dor also strongly disputes Lagarde's view.

Twilight Zone

Fed vs ECB

Whereas the Fed bailed out US banks by paying interest on excess reserves, the ECB charged banks interest on excess reserves draining bank profits.

Negative interest rates unquestionably hurt EU banks and there is no evidence of Lagarde's proposed counter-benefits.

A European banking crisis awaits.

Mike "Mish" Shedlock

Comments (28)
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....this is definitely a race to the bottom in order to keep consumerism going.....Only question remaining a this practically irreversible stage : who or what is going to stop debt stimulating MADNESS ?


One trouble is funding for zombie companies.

Normalize across the board and many will go to the wall with big uptick in unemployment and more non-performing loans. System has trapped itself.

A steady turnover of uncompetitive businesses has been delayed so there could be an avalanche on normalisation.

The basic idea was to help sovereigns but instead of careful fiscal policies they just borrowed more at low rates.

The more bandaids the more complex and the more likely some apparently unrelated event causes widespread mayhem.

Anything could happen including increased protectionism to prevent collapse of what they might consider "key" zombies & thereby screwing things up even more.

Imagine a substantial increase in unemployment in the Euro zone. They would have to ban voting.


Germans have been massively financially repressed and if shtf they also get to pick-up the final bill. Screwed for years with some final event waiting too just to add insult to injury.

Add to that, many rent rather than own so they don't even have tge real-estate inflation benefits if low rates.

Am I missing something? They must love being screwed.


There was an interesting interview last year between Gordon T Long and Lacy Hunt - Financial Repression Authority. On youtube. Worth a listen, covers rates, devaluations etc and gives a good idea of the past consequences. Mentions the French 1927 actions post WW2 of competitive devaluation finally leading to the US 1933 actions.

Devaluation of the Euro has a part to play in this.


Question - has Lagarde been successful at anything much positive? Serious question.

Outside of occupying her post, being a woman & French, what's so special about her achievements in her role at the IMF?

Note EU President is German woman, ECB French woman. ECB now purely politically driven? Wheres this going?


When that lower monthly payment achieved through lower rates fails to stimulate purchases, what to do? Extend loan durations. Lower lending standards. Increase incomes. Tase anyone with cash.

Country Bob
Country Bob

It is one thing to say zero interest rates were necessary right after the credit bubble popped. Its dishonest for central bankers to say that, since it omits that they themselves created the emergency (their failure to exercise regulatory duties created the bubble).

For any central bank to suggest that this emergency situation needs to continue indefinitely is essentially an admission of total failure. Not just failure to regulate, but failure to address the problems even after those problems are obvious to the common man on the street.

Its one thing for GM or Kodak to fail to see their market changing and prepare -- and most people view the management of those companies as failtures. Its another thing when the central bankers still can't see the disaster more than a decade after it hits.

Lagarde made a complete mess of Argentina, her "signature" action as head of the IMF. One has to wonder how brain dead the EU is to even consider her for the ECB. I think the EU is already bankrupt, and already circling the drain... but any doubt in my mind vanished when they hired Lagarde even when they saw the Argentina mess.

They are appointing a proven failure. They know she is a failure. But she is part of their little clique. Better qualified people are available, but not part of the clique.

The EU is dead.


"failure to address the problems even after those problems are obvious to the common man on the street." You are making projections, maybe because of people you know. I can assure you, the people on the street have no idea who does what to them. Their state of mind can be described as...mysticism. The EU will be dead when the elites say it's dead.


Not to mention the decline in tax revenue, but they can borrow from the ECB to make up for that.


I think the Overton window needs to be smashed over the heads of the general public. This rampant capitalism, this festering elitism, the bubblification of our societies needs to be stopped and reversed. Can you ever recall a time where the inequality was this massive? And somehow, most of us are distracted by celebritynews, tech, screens, extreme social justice bullcrap and imaginary genders. Is it just me, or are we becoming evermore stupid?