This new and important step in the effort to de-link the vulnerabilities of sovereigns from euro area banks implies an allocation of supervisory functions to the European level. Therefore, European recapitalization creates an immediate need for European banking supervision.
But what really counts are real interest rates – what is left after deducting inflation. In Germany, for example, the real interest rate on deposits in 2007 was around 0%, because interest rates of 2.2% were offset by inflation of 2.4%. Now it is 0% again. So is all the concern about expropriation through the current low interest rate policy overblown?