Here is the euro area's real problem: bank lending to the private sector has been falling at an annual rate of 1.4 percent during the third quarter of this year, despite the fact that banks can get all the money they need from the European Central Bank (ECB), and more, at an interest rate of 0.05 percent.
This should give pause for thought to people calling on the ECB to (over)flood the euro area financial market with massive new liquidity. Indeed, what purpose would that serve at the time when the ECB is trying to get more bank lending from the existing huge volume of loanable funds?
Apart from issues related to the ECB's recent asset quality review (AQR) in the banking system, the cause of weak bank lending is entirely on the demand side: high unemployment and stagnant (real personal disposable) incomes are depressing the demand for money from businesses and households.
The latest numbers show that things are getting worse. The rate of decline of euro area's consumer and mortgage lending accelerated in September (from dismal levels of a year ago), while business loans were falling at a roughly unchanged pace seen in previous months.
Absurd opposition to ECB's easy policies
Looking at this evidence, it becomes obvious how misguided Germany was for ferociously attacking the ECB's call a few months ago for less restrictive fiscal policies, within the agreed budget deficit guidelines, to support a modicum of euro area's growth, employment and bank lending.
Sadly, pressures for the region's fiscal consolidation are growing more intense. They are also assorted with demands aimed at a systematic deconstruction of the European welfare state that will aggravate poverty and unemployment in the short run – and beyond.