Bank lending in the Eurozone: out of ECB control before and after 2008.

As the author states quite rightly “not all deposits are created equal” and the hierarchy of money is too often overlooked when the financial press write about central bank policy…

Real-World Economics Review Blog

Before 2008 the ECB messed up when it comes to financial stability (borrowing and lending, see graph 1). Lending was clearly out of control (From the modern version of Faust: Mephistopheles, totally desperate: “Aaarghh  … which central banker does not start to hyperventilate when multiple countries in a monetary union have lending growth rates which are consistently over 15% and sometimes even over 30%! Which purpose is left for me, on earth, with people like Robert Lucas, Alan Greenspan and Jean ClaudeTrichet roaming the place…”). But the post 2008 situation is as troublesome.


Source: @cigolo (except for the red line and the text).

Runaway lending led to house price inflation, construction booms and overly indebted households and non-financial companies and, of course, to a bust characterized by deleveraging, subdued demand, huge medium term output gaps (Eurozone unemployment is 11,5%) and the slow but sure unraveling of the European project…

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