So this is the moment that the majority of Germans have been waiting for for eight years – ever since the European Central Bank (ECB) introduced negative interest rates in the summer of 2014. She charged interest from banks that parked her money – instead of paying them interest, as had been the case for centuries. Over the years, more and more banks passed the negative interest rates on to their customers. Recently, many, whether private or corporate customers, were personally affected. It was a reversal of all values and a first-rate nuisance that left almost no one indifferent and also occupied the courts.
Now the era of negative interest is coming to an end. The direct bank ING, one of the institutes with the most customers in Germany, will actually do away with it from July. Other banks will have to follow quickly, if only to avoid losing customers. One of the consequences of the distorted world of interest rates was that banks basically no longer wanted customers. If there are now positive interest rates, you can earn money with customers again. And the customers themselves get money for their savings. Everything seems to be normal. It is the moment that many have been waiting for.
Nevertheless, there is no reason for bank customers to be relieved or even to celebrate. Basically, the situation is worse for them today than it was eight years ago. And it will remain bad even when the last bank has abolished negative interest. The reason for this can be summed up in one word: inflation. The price increase rate in Germany was 7.4 percent recently, and it looks like the high inflation will not go away anytime soon. In order to at least get some of that under control, the ECB will have to raise interest rates earlier than long expected, probably also in July. In anticipation of this, the first banks are now abolishing negative interest rates. The reason for the end of this strange money era is therefore a sad one: that the Germans have significantly less in their wallets today than in previous years.
Many banks have continued to do good business with the help of the ECB
A simple calculation shows the magnitude of the problem: in the years before 2021, the inflation rate averaged around one percent for a long time. If you had to pay 0.5 percent negative interest on your savings, your money lost 1.5 percent in value per year in real terms – taking inflation into account. If the negative interest rate is eliminated, but the inflation rate over the year is seven percent, as expected by the Bundesbank, the loss in value is exactly this seven percent. Certainly no reason for cheering for bank customers.
For the banks themselves, which complained the loudest about the negative interest rates, the situation wasn’t all that bad. Many have even turned it into a business recently because they passed the negative interest rates on to customers and also made use of relief from the so-called TLTRO program from the ECB, which was intended to offset these burdens. The profit situation of the savings banks and the Volksbanken and Raiffeisenbanken in particular was better than the mood they spread. Their business model remained intact and will remain intact even after the end of the negative interest era.
The real losers from the ECB’s monetary policy were and are consumers. Before, they had to endure the fact that the banks passed the negative interest rates on to them. And now they have to face the fact that even if interest rates turn positive again, inflation will never be offset. The concern of the ECB and politicians in recent years has tended to be towards the banks. There were fears that the negative interest rate could endanger the stability of the financial system. Now it turns out that those worries were unjustified. The financial houses have fared well.
Politicians must now focus on making life easier for poorer households in particular – with grants for everyday needs and higher social benefits. They suffer the most from the high price increase. The problems that negative interest brought with it are small in comparison.