by Thorsten Polleit
Mises.org
In June 2024, the European Central Bank (ECB) began lowering its key interest rate. Borrowing costs were reduced from 4.5 per cent to 2.5 per cent in March 2025—which, after accounting for the officially measured inflation, is almost zero per cent in real terms. The time when euro deposit holders could achieve a positive real interest rate was very brief.
What is the reason for the interest rate cuts? ECB decision-makers explain to the public that inflation is declining—in February, the rise in consumer goods prices in the euro area was 2.4 per cent—and that would justify lower interest rates. However, the real reason is something else.
The euro area economy can no longer deal with elevated interest rates. Many countries suffer from weak economic growth, especially Germany, the largest economy in the euro area, is literally in a downward spiral.
This is not surprising: The interventionist-socialist policies in many European countries, particularly in Germany, are suffocating, or rather destroying, the forces of economic growth.