This way, attempts to stimulate growth with aggressive policy rate cuts when there are bank balance-sheet problems get wasted and can even backfire in the form of malinvestments, creating false hopes of a growth boost and relaxing the pedal on deeper balancesheet and structural reforms of the banking sector.
When seen from an international perspective, real activity in the euro area – in its deviation from trend – has been remarkably in line with that seen in other countries, but with a crucial difference: euro area inflation has been appreciably lower and more stable, thus benefiting consumers and allowing businesses to make decisions within an economic environment unclouded by the “fog” that inflation inevitably creates.