Around ten years ago, monetary policy shifted into low-interest mode. Yields on fixed-interest securities in Germany, for example, headed steadily downhill, with a negative average yield being recorded for the first time in 2016. The ECB accompanied this development, slashing key interest rates to historic lows in the wake of the financial and sovereign debt crisis and launching a gigantic bond purchasing program.
For private households, the low interest rates have meant considerable losses in interest income. Although assets invested in deposits, bonds and insurance policies have grown by more than 40% since 2009, the interest income from these investments will presumably decline to an estimated EUR 54 billion in the current year, i.e. to just over half of interest income in 2009. According to our calculations, the annual interest losses compared with normal interest rates have amounted to EUR 648 billion over the ten-year period. While savers are hit by the low interest rates, private borrowers are benefiting from favourable lending conditions. Their annual interest savings compared with the normal level of lending rates now amounts to EUR 290 billion. If the interest savings on loans are offset against the interest losses on investments, this leaves net interest losses in the amount of EUR 358 billion. The main beneficiary of the ongoing phase of low interest rates is the state, which is having to pay virtually no interest on more recent debt.
With the ECB’s intention announced in September last year to gradually phase out its net bond purchases, hopes of an approaching end to the low interest rate phase were nurtured, but these hopes were dashed at the turn of the year as economic growth decelerated in Germany and Europe. And finally with the escalation in the trade conflict between the USA and China, the chances of monetary policy returning to normal have decreased even further. There are no signs of a turnaround. Interest rates will remain low for the foreseeable future.