But perhaps the strongest argument against further easing is its likely effect on the eurozone’s banks. When the ECB lowers its policy interest rates, commercial banks need to reduce the rates they charge on their loans, but cutting their deposit rates is much harder. Hence, banks’ profits shrink. And bank profitability in the eurozone is already abysmally low because the entire area is overbanked.
Eurozone banks’ market-to-book-value ratios have fallen steadily since early 2018 and now range between 0.4 and 0.6