Businesses, too, benefited from the more-accommodative financial environment. Low interest rates have not only reduced short-term borrowing costs but they have combined with more narrow risk spreads to keep longer-term corporate borrowing costs attractive. The extended period of low interest rates has allowed firms to refinance high-cost debt and to substitute long-term debt for short-maturity debt to improve their balance sheet liquidity.
First, the severe recession resulting from the global financial crisis led to a deterioration of the quality of banks’ loan books. The current economic expansion should therefore help to improve the asset quality of European banks. At the same time, structural weaknesses still persist.