At a  recent hearing of the Committee on Economic and Monetary Affairs of the European  Parliament, the ECB President warned that a lengthy period of low interest rates has created ‘fertile terrain’ for financial-market risks and called on governments to take action against the risks associated with rising debt levels or excessive valuations, which have resulted in significant vulnerabilities in some European real estate markets.
However, the improvements in corporate profits and sentiment have not stimulated business activities of many firms, because these firms still strongly feel that they have excess capacity and employees and that they should reduce their debts to restore financial soundness. In addition, efforts by firms to reduce personnel expenses have prolonged the severity of households’ income conditions.