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Germany may complain louder, but ECB policy hits Italians harder

Germany may make the most noise about low interest rate policies, but new research by the European Central Bank (ECB) claims Italians have been harder hit than their German peers.

Lower interest rates "have had a minimal effect" on household net interest income in both Germany and France, where interest earnings and payments have been comparable, the bulletin explained.


Mario Draghi, president of the European Central Bank (ECB), left, and Wolfgang Schaeuble, Germany's finance minister.
Michele Tantussi/Bloomberg via Getty Images
Mario Draghi, president of the European Central Bank (ECB), left, and Wolfgang Schaeuble, Germany's finance minister.

The research is based on changes to average household net interest income - the difference between interest charges on borrowed money and interest earnings from assets including savings - since 2008, when the central bank started to cut its main refinancing rate from 3.75 percent to where it now stands at 0.00 percent.

While interest earnings have dropped for most households, the ECB's economic bulletin explained, interest payments have also decreased "considerably," essentially balancing out the effects of the ECB's low rates.

German Finance Minister Wolfgang Schaeuble has been an vocal critic of Europe's central bank. Most recently, the minister said he recognized that ECB policy had to accommodate all 19 euro zone members but that it was "not the optimal monetary policy for Germany," Reuters reported. The German finance minister said the ECB must be open to public debate.

Across the euro zone, household interest earnings as a share of disposable income fell by 3.2 percent. But that's versus a 3 percent drop interest payments.

How that's played out across different countries, however, is a different story.

"The net interest income of the household sector has remained fairly stable in Germany and France, but less so in Italy and Spain," an ECB's economic bulletin published Tuesday stated.


Spain has come out as the poster child for effective ECB policy, where declines in interest payments have actually outpaced the drop in interest earnings since 2008, helping Spaniards service their high stock of household debt - averaging around 120 percent of gross disposable income, compared to euro zone average of just under 100 percent.

However, in Italy, however, the drop in household interest earnings has slid over twice as much as the drop in interest payments. That's thanks to the fact that Italian hold a relatively large amount of interest bearing assets, like deposits and bonds, relative to their income. They've held much lower proportions of household debt, worth just over 60 percent of gross disposable income.

Since 2008, interest-bearing assets have been worth about 160 percent of households' gross disposable income in Italy, compared to less than 120 percent in Germany.

"(This report) makes a fair point very plainly," Jack Allen a European economist at Capital Economics told CNBC by phone on Tuesday. "Generally speaking this comes amid lots of criticism of loose monetary policy from Germany, where they've said the lower level in interest rates and further monetary easing have depressed earnings on saving and assets, which is bad for consumers and spending."

While Germany has complained about European monetary policy, Allen suggests the country is in part to blame. Interest rates have been slashed in an effort to boost inflation, which has been low in part due to the German government's "unwillingness to loosen the purse strings" in an effort to encourage economic expansion.

The next ECB interest rate decision will be announced July 7.