While the European Central Bank kept policy rates higher than the monetary authorities
of the UK and the US until 2013, its policy stance has been highly expansionary recently.
The European Central Bank (ECB) reduced policy rates further and has engaged in
unconventional measures since June 2014, including a large asset purchase programme
and targeted longer-term refinancing operations (TLTROs) for banks. As a result, the
Eurosystem’s balance sheet has expanded strongly. To encourage commercial banks to use
the additional liquidity to boost lending, the ECB introduced negative interest rates on their
deposits at the ECB. It announced an extension of its asset purchase programme by 6 months
and reduced the deposit rate further below zero in December 2015.
These steps contributed to a substantial depreciation of the euro against the dollar,
boosting competitiveness, including in Germany’s export-oriented economy. Credit to the
private sector in the euro area has been gradually recovering. Banks have begun relaxing
lending standards, in particular in countries where these standards were tight (OECD,
2015n), and lending interest rates have fallen. The impact on lending in Germany has been
relatively small, in part because conditions for access to credit have been good throughout
in recent years (Ifo Business Survey, 2015). Credit growth remains modest.
Strong profitability and subdued business investment plans are holding back the demand for bank
loans. Nevertheless, euro area monetary conditions are relatively loose for the cyclical
position of the Germany economy, as economic growth and employment have been
stronger than elsewhere in the euro area, and the output gap in Germany is now likely to