OPINION

Interest rates

The European Central Bank’s announcement that interest rates are down half a percentage point will meet with an immediate response by commercial banks, if the past is any indication. As usual, most banks will lower the savings rates much further than their loan rates. Eurobank has already announced a 0.5 percent decrease in its savings account interest rate, which is equal to the ECB’s decrease, but a drop in the loan interest rate of only 0.25 percent. This unequal drop in savings and loan interest rates widens the already large distance between the yields that banks offer those who save and what they take from clients who have loans. The spread is striking in consumer loans (whether by direct loans or credit cards), where it exceeds 10 percentage points. The usual explanations that this prevents households from going too deeply into debt or that these loans are very insecure are not entirely baseless, but they conceal the extent of profiteering by banks from the spread in interest rates, which is apparent from the passion with which banks bombard the public with offers of new credit cards. The overall outcome of treating savings and loans customers differently is highly problematic. With inflation low – at least by recent Greek standards – people with savings accounts lose a significant amount of their savings deposits, which acts as a disincentive to save (given the ailing stock market and the unreliability of listed companies) and those planning to invest have to pay interest rates much higher than the rate of inflation if they want access to capital for investment. The relative costliness of loan money is reflected not only in loans for capital but also in loans for purchasing equipment and even houses. This banking environment discourages most workers from saving cash, and they cannot increase their savings by borrowing to fund investment. It was hoped that this imbalance, which only benefits banks, would be dealt with by decreased inflation and the introduction of the euro; and it was to a limited extent. Nonetheless, the spread is still great and it has serious economic effects, because it stops cheap money from entering the productive economy and overheating development. Bank administrators must not ignore the problem. And the government, while respecting their autonomy, must exert its influence to reduce the spread.