Working Paper 190 - Allianz · The ECB's zero interest rate policy is having a direct impact on bank interest rates – and a knock-on effect on the wallets of private households:

GROUP ECONOMIC RESEARCH

Working

Paper 190 August 4, 2015

Arne Holzhausen, Sabina Sikova

Low interest rates, incomes and assets: The winners and the losers

M A C R O E C O N O M I C S F I N A N C I A L M A R K E T S E C O N O M I C P O L I C Y S E C T O R S

Working Paper No. 190

Low interest rates, incomes and assets: The winners and the losers

1 Introduction .............................................................................................................3

2 Income effects: redistribution between EMU countries ..........................5

3 Asset effects: For unto every one that hath shall be given? ................. 16

4 Distribution effects: Not only the usual suspects ................................... 27

5 Summary of results ............................................................................................ 39

Appendix I: Methods .............................................................................................. 41

Appendix II: Countries .......................................................................................... 43

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Group Economic Research Working Paper/No. 190/August 4, 2015

1 Introduction

The founding fathers of the euro dreamed that the single currency would pave the way

for political union in Europe. More than five years into the euro crisis, this dream is in

danger of turning into a nightmare: the political rifts between the individual

governments are deeper than ever before, the European Commission is finding it

increasingly difficult to set a common economic policy course and citizens are flocking

to euroskeptic parties on the extreme left and right of the political spectrum in droves. In

this sort of environment, there is one institution in particular that is holding monetary

union together: the European Central Bank (ECB).

Since the outbreak of the crisis, the ECB has been doing everything in its power to stop

the spiral of mistrust and the increasing fragmentation of the euro financial market: by

making unlimited liquidity available to banks in the long term, with the first, limited ad

hoc purchase program for government bonds (SMP) and with the promise to buy up an

unlimited volume of government bonds if need be (OMT). All of these measures have

borne fruit and at least allowed the markets to calm back down. And yet although some

of the "crisis countries", such as Ireland, Spain or Portugal, have managed to claw their

way out of recession, largely by dint of their own reform efforts, the situation in the

eurozone remains tense against the backdrop of record debt levels and unemployment

figures. The drama surrounding Greece has called even this progress into question again.

This is what set the scene for the ECB's decision to launch a large-scale government bond

purchase program (quantitative easing, or QE for short): it is the central bank's last and

also its most potent weapon in the fight to get the euro area back on to a sustainable

growth path. At the moment, it looks like the move could well pay off: the latest economic

indicators paint a fairly favorable picture, although a "Grexit" could soon turn the mood

sour. But it will take some years before we can reach a definitive conclusion on the

success or failure of the QE measures anyway.

One thing that we can already say for sure is that the ECB's continued bailout policy

certainly comes at a cost. Zero interest rates are eating away at capital gains, putting

long-term obstacles in the way of anyone trying to build up savings. In this era of

demographic change, which is forcing us to make additional private provisions for old

age, there is a risk that the price to be paid in the future, when the lost years start to

surface in our social security systems, will be a hefty one.

This paper aims to "measure" the collateral damage caused by monetary policy, to the

extent that it can already be identified. While we have taken the results of last year's

analysis1 as a basis, we have also expanded the scope of our analysis considerably: this

time round, we are looking not just at the direct income effects, which consist of "interest

gains" (interest payments relating to loans that individuals have saved) and "interest

losses" (interest payments on deposits that have been lost), but also at asset effects. This

is not without good reason: whereas to date, the ECB's response to the crisis has largely

taken the form of conventional moves aimed at controlling short-term interest rates -

meaning that the main impact was on bank interest rates – its QE program is now

looking to target interest rates at the long end directly. This gives the ECB much more

power to influence asset prices, even though it naturally cannot control long-term

interest rates entirely; the yield surges seen in recent months only serve to highlight this.

1 Holzhausen, Sikova (2014), The impact of the low interest rate policy on private households in the eurozone, Working Paper 176, Allianz SE.

A U T H O R S :

DR. ARNE HOLZHAUSEN Tel.: +49.89.3800-17947 [email protected] SABINA SIKOVA Tel.: +49.89.3800-56242 [email protected]

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As well as looking at the asset effects, we will also be investigating how monetary policy

impacts different income groups. In other words: we want to look at the distributional

effects of monetary policy.

So why are we performing this analysis? We are certainly not on a quest to indulge in

"ECB-bashing" ("the ECB is expropriating savers") or to try to persuade the ECB to change

its monetary policy course. Passing judgment on the ECB's policy choices is neither the

intention, nor is it even possible within the conceptual framework of this paper: the

benchmark against which European monetary policy is measured is not how much

interest income savers can generate, but purely to what extent the policy provides

monetary stability. It is also, however, clear that monetary policy measures have an

impact on more than monetary stability alone, and that there are always certain "side

effects": each and every interest rate decision has distributional implications, as well as

its winners and losers. This relatively banal statement is anything but trivial within the

context of the euro area. While distribution policy measures are part of "everyday

business" within individual economies – with any corresponding monetary policy effects

paling in significance 2 – redistribution among the eurozone states is not (actually) part

of the plan: the eurozone is not designed to be a transfer union. This explains why the

inter-state effects of monetary policy are not a (popular) topic of discussion.

Of course, this does not mean that they do not exist. As is generally the case: a currency

area without transfers is an illusion – or is at least doomed to fail. The recent years of

crisis have taught us this all-too-painful lesson. But while Target balances, for example,

are now a matter that is discussed out in the open, many of the other effects of the ECB's

policies remain in the dark. We hope that this paper will shed at least some light on this

corner of obscurity. The aim is not to name and shame the ECB. Quite the contrary, we

firmly believe that the sort of trust that monetary union needs to survive can only be

created if all of the effects of a common monetary policy are made transparent.

The rest of the paper is organized as follows: the next chapter analyzes the income effects

in a number of EMU countries; we have also taken the differences between nominal and

real interest rate effects into account. The third chapter focuses on the asset effects: we

have used performance indices for the various different asset classes to try to estimate

the impact that monetary policy, and QE in particular, has had on the assets of private

households in the eurozone. Finally, the fourth chapter is dedicated to distribution

effects: based on the ECB's asset study, which can be used to compile ideal asset

portfolios for various income groups, we have calculated the monetary policy impact on

different income groups. The last chapter contains a summary of the results.

2 This is corroborated by the fact that, as Demary and Niehues (2015) also emphasize, interest rate cuts and hikes alternated on a fairly regular basis prior to the major financial crisis; it is only now, in the current

environment of sustained zero interest rates, that one-sided burdens are starting to come to the fore. Cf.

Demary and Niehues (2015), Die Auswirkungen von Niedrigzinsen und unkonventionellen geldpolitischen Maßnahmen auf die Vermögensverteilung, IW policy paper 15/2015.

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2 Income effects: Redistribution between EMU countries

The ECB's zero interest rate policy is having a direct impact on bank interest rates – and a

knock-on effect on the wallets of private households: lower interest on credit balances

means less income while, on the other hand, lower interest on loans translates into less

expenditure, which increases income by implication. The question as to which effects

dominate in individual cases depends to a large extent on the development of interest

rates on deposits and loans, and on their volume.

For the eurozone as a whole, the trend is clear-cut: both deposit and loan interest rates

have fallen considerably and are currently languishing well below the pre-crisis level, our

yardstick (see Figure 1).3 What is more, the developments are astonishingly

synchronized at first glance; deposit interest rates, however, have more than halved over

the period analyzed, while loan interest rates have only fallen by around one-third.

Figure 1: Bank interest rates in the eurozone, actual development and reference interest

rate

Source: ECB, own calculations.

The section below analyzes the income effects on both the deposit and credit side,

separately to begin with, for the eurozone and its four largest member states4, before

offsetting the positive and negative effects against each other.

Bank deposits

Looking at the eurozone on average, bank deposits account for 67 percent of GDP (see

Figure 2). The figures in the majority of countries are roughly consistent with this

average, with only Spain, Portugal and Luxembourg reporting much higher levels. In

Slovakia and Slovenia, on the other hand, the percentages come in at less than 50%. All in

all, however, the picture is relatively homogenous.

3 There are also, however, a handful of countries in which things have been moving in the opposite direction:

in Portugal, Greece and Cyprus, deposit interest rates have been edging up, while in Slovakia, loan interest

rates have been on the rise. 4 The results for all EMU countries can be found in Appendix 2.

3,7%

5,5%

0,8%

2,0%

0%

1%

2%

3%

4%

5%

6%

7%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Loans

Deposits

6


Figure 2: Bank deposits as a percentage of GDP and total financial assets

Source: Eurostat, AGWR 2015, own calculations.

By contrast, the development in bank deposits over the past ten years paints a very mixed

picture (see Figure 3). Although private household deposits have been on a steady

upward trajectory everywhere – with the exception of Luxembourg and, of late, Greece –

the pace of growth has varied considerably. In Italy, private deposits have more than

doubled, whereas in Germany and France, the increase has come in at only around 50

percent. On the whole, bank deposits have risen by two-thirds in the euro area.

Figure 3: Development in private household bank deposits, 2003 = 100


Figure 4 shows the development of deposit interest rates in the four largest eurozone

countries. The most drastic slide in interest rates has been witnessed in Germany, with a

drop of around three-quarters. The only other countries in which interest rates have

taken such a mighty tumble are Luxembourg, Belgium and Austria. Another fact that

stands out: German deposit interest is now below the eurozone average after being ahead

of the EMU average before the crisis hit. The explanation lies in the relative strength of

Germany’s banks, which generally rank among the most stable in the eurozone. German

banks were able to pass the low interest rates on to their customers fairly early on,

whereas other banks were prepared to continue offering customers relatively high

interest rates on their deposits for some time due to a lack of other financing

alternatives. In this respect, the recent drastic interest rate slumps in Italy and Spain –

0%

10%

20%

30%

40%

50%

60%

70%

80%

Euro area Germany France Spain Italy

Deposits per GDP

Deposits per totalfinancial assets

0%

50%

100%

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250%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Germany

France

Spain

Italy

Euro area

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while hardly a welcome development for savers – send out a positive signal: they reflect

the renewed growth in confidence in these countries' banking systems.

German savers also reacted to these low interest rates by fleeing ever further "towards

liquidity". The proportion of overnight deposits, measured against total bank deposits,

increased by 20 percentage points to 56% during this period (as at the end of 2014). This

preference for liquidity added even further fuel to the fire, encouraging the downward

spiral in interest rates.

Figure 4: Annual average interest rates for bank deposits


This data allows us to calculate the actual and hypothetical interest income (based on

the reference interest rate) both for all private households and per capita (see Figure 5

and Figure 6).

Figure 5: Actual and hypothetical interest income in 2014 in EUR million


0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Germany

France

Spain

Italy

Euro area

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000


8


Figure 6: Actual and hypothetical interest income in 2014 per capita in EUR


The "income gap" that emerges from this analysis is massive, particularly in Germany's

case: while the actual interest income comes in at EUR 12.3bn or EUR 153 per capita, the

hypothetical interest income totals EUR 41.5bn or EUR 514 per capita; this puts the "loss"

at 70 percent - or EUR 361 for each individual saver. The loss for the eurozone as a whole

comes in at "only" 57 percent (EUR 199). The dramatic development in Germany also

becomes evident if we consider that, in 2014 for example, even Spanish households were

generating higher interest income per capita (EUR 166), although their average deposits

were worth almost 30 percent less.

The situation does not show any signs of easing in 2015, on the contrary: based on the

data for the first four months, the "income losses" for German savers are actually

expected to increase further to around EUR 409 per capita or EUR 33bn in total.5

Bank loans

Fortunately, the "losses" on the income side only tell half the story as far as the income

effects of the low interest rates are concerned; for information on the other half, we have

to look at the loan side of things – and this is where households can look forward to

substantial relief. So how much relief is actually on offer?

Unlike deposits, debt levels vary considerably between the individual EMU countries.

Whereas in Germany and France, private household loans make up "only" a good 50

percent of GDP, the values in Spain (76 percent) or Portugal (80 percent) are much

higher. But it would be wrong to assume that the "good old" North-South divide within

the eurozone also applies to personal debt. Debt levels in the Netherlands, for example,

are above-average, while Italy ranks among the countries with the lowest levels of

personal debt (see Figure 7).

5 The figures for all other countries can be found in Appendix 2.

0

100

200

300

400

500

600


9


Figure 7: Loans as a percentage of GDP and deposits, 2014

Source: ECB, Eurostat, AGWR 2015.

Contrary to popular perception, private household deposits outstrip their loans almost

everywhere. The only exceptions are Spain, where deposits are roughly on a par with

loans, and, in particular, the Netherlands (109 percent) and Finland (144 percent). This

once again challenges the stereotype of the over-indebted south and the thrifty north.

The trend witnessed over the past ten years also differs from that seen on the deposit

side. Not only are the differences between the individual countries more pronounced; no

consistent trend emerges either. In many countries, from Spain to Greece and Ireland,

loans rose rapidly for the first few years, but have been on a downward trend, to varying

degrees, ever since the financial crisis hit. German households ultimately make up a

category of their own: here, debt has remained virtually unchanged over the past decade

(see Figure 8).

Figure 8: Development in private household loans, 2003 = 100


Finally, interest rates paint a very similar picture to deposits, at least at first glance:

interest rates have been on a fairly stable downward trend (see Figure 9).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%


Loans per GDP

Loans per deposits

0%

50%

100%

150%

200%

250%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Germany

France

Spain

Italy

Euro area

10


Figure 9: Annual average interest rates on bank loans


At second glance, however, it becomes clear that the development has been less

dramatic than in the case of deposits. Looking at the eurozone as a whole, interest rates

have fallen by around one-third, and even in those countries where the dip in loan

interest rates has been the most dramatic, namely Portugal and Austria, we are talking

about a drop of "only" around 50 percent, compared with up to 80 percent on the deposit

side. This yet again shows that banks tend to be much more hesitant in passing on low

interest rates on the assets side of their balance sheets than they are on the liabilities

side.

Another characteristic of the interest rate trend on the loans side is that there have been

no shifts in the relative interest rate structure between the individual countries. The

development is fairly synchronous throughout the entire eurozone. It is only if we look at

individual interest rate models – largely variable or fixed rates – that we may observe

some differences in short-term gyrations. For instance, in Germany, which has

traditionally a fixed-rate model, the development is far steadier than in Italy or Spain,

where variable rates are more widespread. In contrast to the situation on the deposit

side, German loan rates are also above the eurozone average. This would appear to

contradict the popular assertion (made by banks) that the German market is embroiled

in intense competition.

As with deposits, this data allows us to calculate the actual and hypothetical interest

payments made by private households (see Figure 10 and Figure 11).

Due to the relatively high interest rates on loans in Germany, the annual interest

payment burden on the shoulders of Germany's households is also one of the highest in

the eurozone at EUR 776 per capita (2014). Nevertheless, the average German borrower

still has to cough up 37 percent (EUR 286 per capita) less than in the hypothetical

reference scenario; all in all, this income relief comes to EUR 23.1bn in total (2014). This

means that the relative relief on the loans side is less pronounced than on the deposit

side. At the same time, however, the differences between the individual countries are

also less pronounced; the "income gain" for the entire eurozone, for example, comes to

EUR 256.

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Germany

France

Spain

Italy

Euro area

11


Based on the interest rate developments witnessed in the first few months of this year,

the "gains" on the loans side are actually likely to be even higher this year and are tipped

to surpass the EUR 300 mark in Germany.6

Figure 10: Actual and hypothetical interest expenditure in 2014 in EUR million


Figure 11: Actual and hypothetical interest expenditure in 2014 per capita in EUR


Overall effects

Naturally, what matters to private households is not an isolated analysis of "interest

gains" on the one hand and "interest losses" on the other, but rather the figure that is left

on balance, i.e. the total income effect.

For the eurozone as a whole, the result is an encouraging one: in general, the average

saver/borrower is profiting from the current interest rate levels (see Figure 12). Over the

past six years (2010–2015, inclusive), the average cumulative “gains” in the eurozone

amount to EUR 400 per capita. These "gains" have, however, been dwindling year after

year of late; while in 2012, they came in at almost EUR 100, the figure for 2015 looks set to

be not even half as high. This decline can be explained by two developments: while the

fall in loan rates is slowly leveling off, the rise in debt is also less steep than in previous

years; this limits the potential advantages of the low interest rates.


0

50.000

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300.000


Actual IRpayments

Hypothetical IRpayments

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Actual IRpayments

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12


Even more importantly, however, not all EMU countries are reaping the benefits.

Germany ranks among the biggest losers, with German savers/borrowers having to

digest "losses" year in, year out over the past six years: the cumulative "losses" since 2010

(including 2015) come in at EUR 367 per capita or EUR 29.8bn in total. Alongside

Germany, Belgian and Slovakian households, which have low levels of debt, can also

count themselves among the "losers".

Figure 12: Overall income effect: “losses” or “gains” per capital in EUR


The peripheral countries such as Portugal, Greece and Spain, on the other hand, rank

among the biggest winners. In all of these countries, the cumulative "gains" have

exceeded EUR 1,200 per capita since 2010; the total figures range from EUR 18.9bn in

Greece to EUR 59.9bn in Spain. In relative terms, however, the country that has benefited

the most from the zero interest rate policy is one located in the very north of Europe:

Finland. Here, the "gains" come in at more than EUR 2000 per capita. This comes as no

surprise given the high debt levels of Finnish households, whose loan volume is around

50 percent higher than their deposits; this situation is compounded by extremely low

interest rates on residential construction loans, which had already fallen to below the 2%

mark in 2013.7

The income effects of the zero interest rate policy are also significant in a comparison

with total economic output, especially in the smaller countries on Europe's periphery.

Whereas the positive effect for the entire eurozone comes in at “only” 1.4 percent, the

figure for Portugal and Greece is in the double digits. In other words: had it not been for

the ECB's monetary policy, gross domestic product in these two countries would have

been 12 percent lower than it actually was in 2014; in Spain, this effect accounts for no

less than 6 percent (see Figure 13). This means that the low interest rate policy has

boosted economic development in these countries considerably by fostering an indirect

improvement in the income situation of private households.


-600

-400

-200

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200

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800

1.000

1.200

1.400


2015

2014

2013

2012

2011

2010

13


Figure 13: Total income effects as a percentage of GDP, 2014

Source: ECB, Eurostat, own calculations.

So from a pragmatic angle, the ECB's policy can certainly be said to have had a positive

effect overall. Private households have reaped the benefits, at least on average. Although

the impact of the policy varies from country to country, the bulk of the support was

provided where it was most urgently required: in the periphery states blighted by

recession. German households, on the other hand, have had additional costs to bear. So

the monetary policy cannot be said to have the same impact across the board. Rather,

the redistribution effect of the zero interest rate policy within the EMU countries is

striking.

1,4%

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1,1%

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3,6%

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Euro area Germany France Spain Italy Portugal Greece

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BOX 1: Real income effects

While the calculations to date have been based on the development of nominal interest

rates, it is often argued that only real interest rates, i.e. after adjustments for inflation,

are relevant.

There is no doubt that an entirely different picture emerges if the interest rates are

"adjusted" to reflect the national rates of inflation. The more or less continuous drop in

inflation over the observation period causes the yield curve to flatten considerably. But

the trend not only becomes less dramatic, it also becomes less clear-cut: recently, while

the eurozone was flirting with deflation, real interest rates actually increased, with both

deposit and lending rates coming in above the reference value (see Figure 14).

Figure 14: Bank interest rates in the eurozone after adjustments for inflation – actual

development and reference interest rate


Naturally, this also has implications for the calculation of "interest gains and losses". In

actual fact, positive income effects can now be observed on the deposit side, too: instead

of "losing out" on around EUR 290bn (on a cumulative basis from 2010 until 2015

(inclusive)), private households in the eurozone can now enjoy higher real interest

income of EUR 65bn. Incidentally, this does not apply to German households.8 Because

inflation trends were much less volatile in Germany, households are ultimately left in

the red even after adjustments for inflation, namely by just under EUR 70bn. This "loss"

is, nonetheless, only around half as substantial as it is in nominal terms.

Unlike on the deposit side, the figures remain in the black on the lending side, at least

for the eurozone as a whole.9 The interest gains are, however, much less generous,

dropping from a good EUR 420bn in nominal terms to "only" EUR 130bn in real terms;

German households also see their interest gains sliced more or less in two to EUR 53bn.

All in all, these divergent trends on the deposit and lending side mean that the positive

income effect for the eurozone is actually increased, namely from EUR 132bn to EUR

8 The other countries that are still left with "losses" on the deposit side are Austria, Belgium, Finland and

Luxembourg. 9 In Spain, Greece and Ireland, on the other hand private households are now left with "losses" on the lending side due to the marked drop in prices in these crisis countries.

3,9%

3,1%

1,0%

-0,3%

-2,0%

-1,0%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Loans

Deposits

15


195bn, or from EUR 400 per capita to EUR 587 per capita (in each case on a cumulative

basis for the period from 2010 to 2015); this is an increase of no less than almost 50

percent. So the impact of the zero interest rate policy certainly does not vanish into thin

air when we look at real interest rates. Rather, it is merely the direction and dimension

of the channels of action that change (see Figure 15).

Nevertheless, not all private households are better placed in "real" terms. In Spain and

the Netherlands, the income gains are slightly, and in Ireland significantly, lower; in

Ireland's case, this is primarily due to the country's descent into deflation in the first few

years of the crisis. The biggest winners, on the other hand, include both German

households, whose income losses are virtually halved in real terms, and Belgian

households, whose "losses" are wiped out completely; Italian households also rank

among the biggest winners, with their "gains" rising - due to extremely positive effects

on the deposit side - by more than one third.

Figure 15: Real overall income effect: “Losses” or “gains” per capita in EUR


So ultimately, although the variations between the EMU countries are evened out

somewhat if we focus on real interest rates, this does little to change the fundamental

nature of the zero interest rate policy as a form of redistribution between countries.

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3 Asset effects: For unto every one that hath shall be given?

Assessing the impact of zero interest rates and QE on the assets of private households is

exceptionally tricky for both practical and theoretical reasons.

First, there is only limited data available. While the ECB's interest rate statistics provide

fairly precise information on which deposits and loans households have and which

terms and interest rates apply to them, the asset statistics are much less detailed.

Although financial assets can be split into different categories – shares, bonds,

investment funds, life insurance and pension funds – information on portfolio structures

such as securities classes, terms, credit ratings or country of origin is few and far

between. As a result, the information provided in the asset statistics only allows us to

arrive at a rough estimate.

In addition to these practical problems, there are also theoretical difficulties: to what

extent are asset prices influenced by monetary policy at all? There is no question that

bank interest rates are closely linked to monetary policy. After all, the transfer of key

interest rates by banks to their customers is the stated aim of monetary policy ("interest

rate channel"). The long end of the interest rate curve, however, is already largely out of

the central bank's control and this applies all the more to share prices. The latter are

influenced primarily by a combination of real economic factors such as growth

momentum, inflationary pressure or demographic trends. (Conventional) monetary

policy is only one of many potential factors.10 But at least since the launch of the QE

program, the ECB could now also be accused of consciously targeting long-term interest

rates with the aim of influencing asset prices. To use the central bank's language: the

idea is for large-scale government bond purchases to encourage investors to put their

money into other assets instead, e.g. to buy corporate bonds or equities; this results in

higher prices and, on the other hand, in a (further) improvement in financing conditions

for the corporate sector ("portfolio balance effect").11 As a result, our further analysis

below will also focus primarily on the most recent market developments, which are

under the spell of QE. The analysis will concentrate on financial assets, with real estate

being left out of the spotlight (see box).

BOX 2: Low interest rates and real estate prices

There is no doubt that low interest rates have a positive impact on real estate prices:

more favorable financing conditions make property more affordable, meaning that they

should serve to boost demand, all other things being equal, of course. Since, at the same

time, the supply of real estate is less elastic, or only adjusts to reflect rising demand

after a considerable time lag, this sort of development tends to push prices up. This link

is largely undisputed in literature sources.12

At the same time, real estate assets (insofar as households have them at all) tend to

10 Cf. also ECB (2015), Critique of accommodating central bank policies and the "expropriation of the saver",

Occasional Paper Series No 161. 11 "(…) encourages investors to shift holdings into other asset classes – e.g. from sovereign to corporate bonds, from debt to equity, and across jurisdictions, reflected in a falling of the exchange rate. In combination, a lower

cost of debt finance, a lower cost of equity and lower exchange rate all contribute to making investment

projects profitable that were previously deemed unattractive.” in: Mario Draghi (2015), The ECB’s recent monetary policy measures: Effectiveness and challenges, Camdessus lecture, Washington 14 May 2015. 12 For a good overview of studies examining the link between low interest rates and real estate prices, see

McKinsey Global Institute (2013), QE and ultra-low interest rates: Distributional effects and risks, Discussion paper, page 30.

17


make up the biggest individual item in the asset balance sheets of private households.

In theory, this should automatically translate into substantial asset gains. There are,

however, a number of special factors that have to be borne in mind.

First of all: the overwhelming majority of homeowners only own the house that they

actually live in. In the eurozone, for example, almost 95% of homeowners can "only" call

their own four walls their own.13 So in this sense, real estate assets are sui generis assets,

which – unlike the variety of financial assets – have less to do with saving, i.e.

postponing consumption until the future, e.g. old age, but rather, in the vast majority of

cases, are more similar to commodities whose "real" value is ultimately an emotional

one and lies primarily in the (long-term) use of the property. This is also highlighted by

the fact that, if properties are sold, then the intention in the vast majority of cases is to

buy another property elsewhere. So even in old age, the property ownership ratio only

dips marginally. Price increases cancel each other out and do not imply any real asset

growth.

Second: unlike in the US, particularly in the pre-crisis years, the concept of "home equity

loans", which allow increases in value to be easily converted into new loans, is a

virtually unknown practice in Europe. And even in the US, this method of using one's

own four walls as a sort of "ATM" has fallen out of favor since the crisis hit, not least now

that banks have become much more restrictive in their lending practices. As a result,

rising house prices remain largely "paper gains" that are virtually impossible to convert

into additional consumption opportunities; they are of more theoretical than practical

relevance.

Third: although house prices are rising again on a large number of markets, it is at the

very least doubtful whether this trend can be referred to wholeheartedly as an "asset

gain". After all, the increase merely reflects the (tentative) recovery following the slump

that came during the financial crisis. In Europe, the German real estate market is the

only one that has reported any (real) value increases to speak of since the outbreak of

the crisis/the launch of the low interest rate policy14, with most other markets still

lagging well behind their previous highs. As a result, many homeowners, whose

properties are often still worth less than their mortgages, are likely to be rather cynical

about the idea that the low interest rates have resulted in "asset gains" – even if the

rebound is likely to have received a (far from insignificant) boost from the low interest

rates.

For these three reasons, we believe that it makes sense to leave any calculation of the

possible asset effects relating to real estate aside, and to concentrate on financial assets

instead.

13 Cf. ECB (2011), Eurosystem Household Finance and Consumption Survey. 14 According to the Economist House Price Index, German property prices have increased by around 30% since

the end of 2008. Obviously, the low interest rates are not the only factor behind this increase. Catch-up effects,

positive economic development and migration flows (immigration, rural exodus) have also played a role. But even if we only attribute one-third of the increase to the zero interest rate policy, the asset gains for German

households as a whole are immense: with real estate assets worth just under EUR 5300bn at the end of 2008

(buildings and developed land, from the Bundesbank balance sheets), the asset effect of the low interest rates would come in at more than EUR 500bn.

18


Insurance and pension funds

At the end of 2014, the receivables of private households in the eurozone from insurance

companies and pension funds came in at just under EUR 7,000bn. 85% of this amount

was attributable to the four biggest markets – Germany, France, the Netherlands and

Italy.15

These receivables are secured by a large number of securities and assets; the vast

majority of them, however, are interest-bearing securities. In addition, the investments

tend to be very long-term ones – as is the nature of the products. This means that short-

term price fluctuations are virtually irrelevant and merely result in a temporary increase

in hidden reserves (in the insurers' accounts). What is more, the premature sale of these

investments is either an option that is not open to the beneficiaries, namely the private

households, at all, or one that involves hefty markdowns for them. In other words: it is

not price developments that are the decisive factor in determining the asset effects, but

rather the annual return that can be generated. This annual return is what fuels asset

growth in the long term. The annual return on the investments provides customers with

information on which payments they can expect to receive in the future, e.g. in old age.

Obviously, the actual return on the receivables from insurance companies and pension

funds varies considerably from provider to provider. There is no doubt, however, that

returns have fallen since the start of the low interest rate policy in general. We have

arrived at an approximate estimate of this general development based on the average

return on eurozone bonds. In a comparison with the reference rate for the pre-crisis

years of 2003 to 2008, this calculation once again produces hypothetical losses (or gains)

for the years from 2010 to 2015 (inclusive) based on the existing receivables from

insurance companies and pension funds (see Figure 16).16

Figure 16: Cumulative losses and gains from receivables from insurance companies and

pension funds in EUR bn17

Source: ECB, 2015 AGWR, own calculations.

In the euro area as a whole, these lost returns ("losses") come to more than EUR 400bn; it

comes as little surprise that the heftiest losses have been sustained in Germany and

15 All figures on the financial assets of private households are taken from the "2015 Allianz Global Wealth

Report". 16 A detailed description of our methods can be found in Appendix 1. 17 2015 extrapolated based on the first half of the year.

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France, the two biggest markets.18 What really stands out, however, is that the "losses" are

concentrated on this and last year; in the first few years of low interest rates, on the other

hand, they were much lower. This reflects the impact of monetary policy: conventional

measures only have a relatively muted effect on long-term bond yields. But the more

monetary policy resorts to unconventional measures, the greater the impact becomes; it

was felt in full force with the advent of QE. It is also important to remember that the

impact of QE did not just start to unfold in March 2015, when the program was officially

launched, but had already started to emerge much earlier on: clear anticipation effects

were already rearing their heads on the markets back in August 2014, when the ECB's

President Mario Draghi made his first "announcement" during a speech made in Jackson

Hole.

All in all, however, these "losses" would not yet appear to be too dramatic, coming in at an

average of around 1 percent of the annual amount invested since 2010. If we assume that

the current extreme low interest rate environment will continue, however, a different

picture emerges. Based on an extrapolation of the half-yearly figures, the expected

"losses" for 2015 alone would come in at around 3 percent of the total amount invested,

or a good EUR 200bn. This equates to around half of the gross written premiums that the

entire eurozone life insurance market is expected to generate this year. Losses on this

sort of scale are more than difficult to swallow.

Obviously, any forecasts regarding how long the low interest rates will last for, and

indeed how low they will be – and, as a result, any attempts to estimate the gaps in

retirement provision, for example, that are likely to emerge in the future – are mere

speculation at the moment. One thing, however, should be remembered: at the end of the

day – despite money illusion – it is not so much the nominal, but rather the real returns

that count for investors. After all, by their very nature, receivables from insurance

companies and pension funds, in particular, constitute real savings that postpone

consumption until the (distant) future; the main purpose of the payouts to be received

later down the line is to maintain the standard of living that an individual has become

accustomed to in old age. So if the cost of living rises more slowly, lower returns will be

sufficient. And a look at real returns tells a less dramatic story across the board (see

Figure 17).

For the eurozone as a whole, the cumulative "losses" are reduced considerably in real

terms, dropping to less than one-tenth. For a number of countries such as Spain or

Ireland, an analysis performed in real terms actually results in hypothetical interest

gains, while for France and Italy the interest losses are virtually negligible. In this

analysis, Germany and the Netherlands now report the most substantial losses, with a

fairly moderate drop compared with the analysis based on nominal terms of 56% and 35%

respectively.

Obviously, these figures reflect the differences in inflation trends among the EMU

countries. While inflation has been on a downward trajectory in general over the past few

years, the pace of the decline has varied. Germany, for example, had a fairly low rate of

inflation before the crisis but a relatively high one after the crisis hit – the drop in

nominal interest rates is only cushioned somewhat as a result, but is not compensated

for in full. The real return on investments in Germany is still much lower than it was

18 The full figures for all EMU countries for insurance policies and pension funds (as for all other securities

classes) can be found in the Appendix. One comment on the Netherlands: in this case, our approach would

likely overestimate the "losses", because the popularity of company pension funds means that the proportion of interest-bearing securities is lower than in other markets (in favor of securities).

20


before the crisis. Spain, on the other hand, is currently "benefitting" from mild deflation

after reporting average inflation above the 3 percent mark prior to the crisis – this

translates into an increase in real interest rates.

Figure 17: Real cumulative losses and gains from receivables from insurance companies

and pension funds for the period from 2010 to 2015 (inclusive), in EUR bn

Source: ECB, Eurostat, AGWR 2015, own calculations.

So ultimately, we can again draw two conclusions: when it comes to receivables from

insurance companies and pension funds, it is yet again the case that German

households, in particular, are bearing the brunt of the (extremely) low interest rates,

while other countries have escaped any losses altogether, at least in real terms. Once

more, the disparity in the impact of the uniform monetary policy on the real eurozone,

which is characterized by variations in economic output, becomes apparent.

Bonds

At the end of 2014, private households in the eurozone had direct bond holdings worth a

total of EUR 970bn. This amount is not only much lower than the amount of receivables

from insurance companies and pension funds; it is also distributed extremely unevenly:

real "bond fans" would appear to have always been something of a rarity in the eurozone.

Most of them can be found in Italy, which is responsible for more than 50 percent and (to

a lesser extent) in Germany, which accounts for a further 20 percent. Another special

feature of this asset class: its volume has dropped considerably in recent years, namely

by 30 percent or EUR 420bn since the end of 2008. There is no need to ponder for very long

on the motives behind this development. In an environment characterized by low and

falling interest rates, the prospect of buying new bonds loses its appeal. As a result,

investors are unlikely to replace many maturing bonds with new ones. What is more, a

large number of households are likely to have sold their bonds at above their par value

before they reached maturity and then invested the proceeds in other assets instead – or

used them for consumption.

Although returns are the determining factor for bonds – as for receivables from

insurance companies and pension funds – there is one key difference: directly held

bonds can be sold at any time, meaning that they are liquid investments. Consequently,

price changes are also significant because private households can realize price gains at

any time. As a result, when calculating the hypothetical losses and gains associated with

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this asset class, we have opted to look at overall performance, i.e. price and interest rate

developments.19

Not surprisingly, bonds have benefitted from the low interest rates in terms of their

overall performance; lower coupons have been more than compensated for by

considerable price increases. All in all, the "gains" for private households come in at

EUR 125bn over the past six years (see Figure 18). At this point, however, it is important to

bear in mind that these gains are hypothetical in two respects. First, they are calculated

based on a comparison with "normal" developments based on our reference period.

Second, they rest on the assumption that the annual increases in value are actually

realized, i.e. that the bonds are not held to maturity. In reality, however, this is unlikely to

always be the case – which once again highlights the ephemeral nature of asset gains:

they exist first and foremost (on paper) and can disappear as quickly as they emerged.

Figure 18: Cumulative losses and gains from direct bond holdings in EUR bn


Another striking feature is how the "gains" are distributed over time: they were generated

for the most part in two individual years, 2012 and 2014. These two years have one thing

in common: these are the years in which the ECB announced new, unconventional

measures: in 2012, it was the OMT program in Draghi's famous "whatever it takes" speech,

and in 2014, it was the QE program. So it would appear that monetary policy measures

have the biggest impact on the markets before they are implemented, whereas their

actual implementation is no longer of much interest. This very same explanation can be

used for the weak bond performance in the first six months of this year – in which the

ECB finally launched its large-scale bond-purchasing program, which has actually

resulted in "losses" for bondholders to date due to the abrupt increase in yields.

So the impact of the zero interest rate policy on bonds can be summarized as follows:

positive in general, but the only households that can really benefit are those in Germany

and Italy. For everyone else, the "lever", namely the bonds they hold in their own asset

portfolios, is simply too small.

Equities

At the end of 2014, the equities held directly by private households in the eurozone came

to a total volume of EUR 3,850bn; exactly half of this amount was attributable to French

and Italian households, followed – albeit quite a way behind – by households in Germany

19 A detailed description of our methods can be found in Appendix 1.

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and Spain. At first glance, developments in this asset class appear to be encouraging,

with their value rising by EUR 785bn (+26 percent) since the end of 2008.

As with the other asset forms, however, the potential "gains" associated with the zero

interest rate policy are calculated by way of a comparison with the reference period;

positive development is not unusual per se, but rather is consistent with historical

experience and theoretical considerations ("equity premium"): we cannot attribute every

increase in share prices to the impact of the zero interest rate policy.20

At first glance, the analysis would appear to return surprising results: at the end of the

day, private households in the eurozone have not reaped any benefits to speak of from

their direct equity holdings in the period from 2010 to 2015 (inclusive). The gains come

in at only EUR 50bn (see Figure 19). In relation to the equity portfolio as a whole (as at the

end of 2014), this equates to a paltry 1.4 percent. Italian households are actually left with

slight losses to the tune of just under EUR 5bn, whereas French households can report

"gains" of around EUR 22bn.

Obviously, investors have also been able to generate substantial price gains during this

period as well by putting their equity portfolios together in a skillful fashion, e.g. by

significantly overweighting German equities. Logically, however, our analysis focuses on

the European market as a whole, where the impact of the ECB's low interest rate policy

should be the most pronounced, where possible free of national and specific effects on

share price performance.

If we take a closer look, however, we can see that the majority of the "losses" relate to 2010

and 2011, the early years of the low interest rates in which some European economies

were still grappling with recession. As the low interest rate policy persisted and became

more aggressive, however, the European stock market turned around and moved into the

black, with 2012 and 2013 allowing investors to enjoy the most substantial "gains". After

the 2014 "gap year", which was more or less a lost year for shares across Europe, this

effect becomes particularly apparent in 2015. Despite the turbulence in Greece, investors

enjoyed significant price gains in the first six months of this year thanks to the QE

program. The total "gains", i.e. the "excess returns" achieved over and above the "normal"

returns for the reference period, come in at EUR 250bn. If this trend is extrapolated to

cover the year as a whole, the "losses" incurred in the first few years will have been more

than compensated for by the time this year is out.

20 The reference period for shares has been shifted forward one year (2002 – 2007), because the data would

otherwise be excessively distorted by the dramatic stock market slump in the wake of the Lehman crisis; details on our methods can be found in Appendix 1.

23


Figure 19: Cumulative losses and gains from direct equity holdings in EUR bn


We can, nevertheless, conclude that equity exposure for private households in the

eurozone was certainly not a recipe for automatic success over the entire low interest

rate policy period. Investors certainly could not expect automatic gains. This only applies

to the last few years of the unconventional monetary policy, mainly for 2015 and the

launch of the QE program. But even here, the lost stock market year of 2014 shows that,

even when monetary policy is extremely expansive, the stock markets are not a one-way

street. It is important not to overestimate the impact of monetary policy on the stock

markets.21

Investment funds

At the end of 2014, private households in the eurozone held investment funds worth

EUR 1,700bn; the most enthusiastic buyers were the Germans (just under EUR 500bn)

followed by Italian households (EUR 370bn). Investment fund holdings have swollen by

EUR 440bn or 35 percent since the end of 2008. This is not, however, solely attributable to

value gains, but largely to new fund inflows. After all, unlike direct equity and bond

holdings, investment funds often form part of savings plans into which regular deposits

are made. At the same time, investment funds offer investors access to a wide range of

asset classes. In addition to conventional funds such as equity and bond funds, funds are

now available to cover all sorts of investment, ranging from real estate and

infrastructure, to currencies and commodities and investments in emerging markets.

Measuring the performance, i.e. the value gains leaving fund inflows out of the equation,

of an asset class that is as varied as this one is anything but a trivial matter. As a result,

we have calculated a hybrid performance indicator for our analysis, based on the

weightings of the individual fund categories that we have used to approximate the actual

development; this, in turn, is compared against the reference period.22

All in all, this calculation results in "gains" of just under EUR 100bn for private

households in the eurozone since 2010 (up to and including 2015). This moderate trend

on the whole is attributable to 2010 and, in particular to 2011; in 2011, investment funds

21 This view is also reflected in numerous studies on this issue which, quite rightly, produce different results -

and are often unable to prove any link between monetary policy and QE on the one hand, and the stock markets

on the other. See also FAZ "Anleihekaufprogramme wirken am ehesten international", July 22, 2015, p.25.

22 Detailed information on our methods can be found in Appendix 1.

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reported very negative performance across the board. The years that followed, on the

other hand, went hand-in-hand with value growth (see Figure 20).

Figure 20: Cumulative losses and gains from investment funds in EUR bn


So ultimately, it is yet again the case that the years of unconventional monetary policy

were the most worthwhile, but nevertheless did not produce gains exorbitant enough to

make up for the first few lean years.

Financial assets overall

So what sort of impact has the zero interest rate policy had on financial assets as a

whole, excluding bank deposits and loans? For the entire period since 2010, private

households are left with losses to the tune of EUR 130bn (see Figure 21). This

corresponds to precisely 1 percent of the assets included in our analysis, as at the end of

2014. This means that financial assets (excl. bank deposits) would be one percent higher

today if the ECB had not pursued a systematic low interest rate policy since the outbreak

of the crisis. In other words: all in all, the impact of monetary policy on assets is not really

worth mentioning.

These negative "returns" are, however, distributed fairly unevenly among households.

Households in the Netherlands have been forced to shoulder the heaviest losses of

EUR 78bn, which corresponds to no less than 4.7 percent of the assets included in our

analysis. The only other country where households have sustained relative "losses" on a

similar scale is Ireland. German and French households have lost out on EUR 53bn (1.7

percent). But there are also "winners": in Italy, Belgium and Spain, for example, the "gains"

range from EUR 10bn to EUR 36bn; in relative terms, Greek households fare particularly

well (+2.7 percent). These variations naturally reflect differences in the investment

behavior of private households from country to country.

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Figure 21: Cumulative losses and gains on the financial assets (excl. deposits) of private

households in the eurozone, in EUR bn


Nevertheless, it may come as a surprise to see that the zero interest rate policy led to any

asset losses at all in some countries. Two main reasons are behind this: first, the rising

"losses" due to the drop in the returns on insurance policies and pension funds and,

second, the weak stock markets in the early years of the crisis. If, on the other hand, 2010

and 2011 are left out of the equation, the outcome is quite different: private households

are then left with "gains" of EUR 1100bn or 8.2 percent of the assets included in our

analysis – all thanks to the booming stock markets (see Figure 22). Savers with a

penchant for securities, like the Italians, benefit the most, while conservative savers like

German households benefit less in relative terms: while in Italy – just like in the other

southern periphery states of Spain, Portugal and Greece – the "gains" come to more than

13 percent, the figure for Germany is only just under 5 percent; France (almost 8 percent)

and, in particular, Ireland (2 percent), also report only below-average "gains". The

households that fare the worst, however, are those in the Netherlands. Even if the

shortened period is taken as a basis, these households are still left with "losses" of around

EUR 13bn (0.8 percent). This is the price that the Dutch pay for their strong preference for

interest-sensitive insurance policies and pension funds.

These figures once again highlight the uncertainty surrounding estimates of possible

asset losses and gains: the question as to whether the zero interest rate policy has

resulted in more gains than losses ends up being a matter of perspective more than

anything else – i.e. it is all about selecting the "right" observation period. The situation is

exacerbated by a further difficulty: these "gains" only exist "on paper". For the majority of

private households, the situation generally remains the same. This is because, unlike the

impact of the zero interest rate policy on deposits and loans, which result in direct

income effects, the effect on other assets is merely a valuation effect. These effects can,

however, also influence day-to-day spending decisions, although there is much debate in

the pertinent literature as to how strong this influence is.23 If we use a common approach

and assume an asset effect of 3 percent – meaning that assets that are valued EUR 1000

higher result in an additional EUR 3 being spent – this effect would correspond, based on

annual asset gains of just under EUR 300bn in the entire eurozone, to an average of

around EUR 10bn a year over the past four years – or 0.1 percent of economic output.

23 For a brief overview of empirical studies on asset effects, please see McKinsey Global Institute (2013), QE

and ultra-low interest rates: Distributional effects and risks, Discussion paper, page 32.

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Figure 22: Cumulative losses and gains on financial assets (excl. deposits) in EUR bn


So the overall conclusion is a rather sobering one: the question as to whether the zero

interest rate policy has benefitted or harmed asset owners in general is largely

determined by the window of time that is taken as a basis. This alone speaks volumes

about the sustainability of any "gains" or "losses". It does, however, highlight the fact that

asset owners have benefitted less from the low interest rate policy as such, but primarily

from the ECB's moves to save the euro. The scale of any impact, however, is certainly not

anything to worry about (as yet), especially if we look at the actual impact, i.e. not at the

valuation effects per se, but at the possible resulting consumer spending. Looking at

households as a whole, these effects have been negligible to date. So when it comes to

the impact of the zero interest rate policy on assets, the motto would appear to be: much

ado about (virtually) nothing.

This does not, however, mean that clear winners or losers cannot emerge from the group

of private households as a whole. This is the question that the following chapter

addresses.

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4 Distribution effects: Not only the usual suspects

So far, our calculations have looked at private households as a whole, or at a simple

average (per capita analysis). Since, however, assets tend to be distributed relatively

unevenly, the average impact can easily mask huge differences in the effects on

individual household groups.

With the help of data from the ECB's large-scale asset survey entitled, “The Eurosystem

Household Finance and Consumption Survey” (HFCS)24, these varying effects on

individual income groups can be investigated in greater detail. The same procedure as

the one used to analyze the total assets of private households has been used, but instead

of looking at a single asset portfolio, for example for the German household sector, we

have now examined five different portfolios for the individual income groups.25

Income effects: Bank deposits

It comes as little surprise that the "interest losses" on the deposit side rise in line with

incomes. After all, the amount of bank deposits also tends to rise on average in line with

incomes (see Figure 23).

Figure 23: Distribution of average "interest losses" per income group on a cumulative

basis from 2010 to 2015 (inclusive), per capita in EUR


There is no doubt that a relative analysis that looks at "interest losses" in relation to

average income is more interesting. The picture is then turned on its head entirely, and

the people on the lowest incomes are hit the hardest. This asymmetrical impact is the

most pronounced in Germany: in relation to income, the lowest income group bears

twice the burden of the highest income group. So on the deposit side, it is certainly a

case of "distribution from the bottom to the top". In other countries, mainly on the

southern periphery, this effect is much less pronounced, if visible at all (see Figure 24).

24 ECB (2014), The Eurosystem Household Finance and Consumption Survey, Statistics Paper Series No. 2, European Central Bank.

25 For details on the methods used, please refer to Appendix 1. There are two reasons, however, why a direct

comparison with the previous calculations is impossible: first, the analysis is static, i.e. it ignores changes in the portfolios over time, and second, different data is taken as a basis, because the asset data for each income

group is based on surveys - and deviates, sometimes substantially so, from the "official" wealth account data.

Nevertheless, this allows us to arrive at a satisfactory estimate of the different effects on the various income groups.

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Figure 24: Distribution of average "interest losses" per income group on a cumulative

basis from 2010 to 2015 (inclusive), in basis points of average annual income


Income effects: Bank loans

As with deposits, the absolute "interest gains" are also concentrated in the higher income

classes: high incomes are a prerequisite for substantial loans, meaning that they act as a

major lever for income gains on the loans side (see Figure 25).

Figure 25: Distribution of average "interest gains" per income group on a cumulative

basis from 2010 to 2015 (inclusive), per capita in EUR


If we look at the relative "interest gains" (as a percentage of income), however, the picture

that emerges is completely different to the one on the deposit side. At least in the

eurozone, the income effects vary only slightly, with virtually no clear "winners" among

the individual income groups. The group that comes closest to being classed as a

"winner" is the upper middle class, who take out home loans on a significant scale

without having exorbitantly high incomes. In turn, the lower middle class ranks among

the losers; here, the lending volume is low, while income levels are already relatively

high. This pattern is repeated with (slight) variations in the majority of eurozone

countries, also in Germany; one country in which it is particularly pronounced is Spain,

for example (see Figure 26). In some countries, for example the Netherlands and Greece,

on the other hand, the lowest income group reaps the most benefits. The "interest gains"

in the Netherlands come in at 1.8 percent of income, an effect that is almost three times

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as strong as in the highest income group. This example once again shows that,

particularly when it comes to household debt and the resulting income effects, the

North-South stereotypes do not stand the test of reality.

Figure 26: Distribution of average "interest gains" per income group on a cumulative

basis from 2010 to 2015 (inclusive), in basis points of average annual income


Income effects: Overall effects

If we look at the "interest gains and losses" on balance, then the following picture

emerges for private households in the eurozone: while the positive absolute income

effects continue to increase the further up the income ladder we go, it is the upper-mid

income group that is benefiting the most in relative terms (see Figure 27).

Nevertheless, the effects on the individual income groups vary considerably from country

to country.26 In Germany, for example, the distribution effect is something of an

"inverted" one: the highest income group is also the group that benefits the most in

relative terms, while the lowest income group either benefits the least or actually loses

out. No other EMU country shows the same sort of "redistribution from the bottom to the

top" (see Figure 28).

In Germany's neighboring country, the Netherlands, for example, the effect is the exact

opposite: here, the lowest income group is enjoying by far the biggest income effects in

relative terms, with the highest group benefiting the least. In Greece (as well as Cyprus

and Slovenia), it is also the low-income groups that are reaping the most benefits from

the zero interest rate policy.

In Spain and Portugal and (to a lesser extent) in France, on the other hand, the positive

income effects are concentrated in the middle class, with the top ten percent of earners

benefiting much less from the zero interest rate policy. Finally, Italy and Austria stand

out based on their relatively egalitarian distribution of income effects.

26 See Appendix 2 for all data on the EMU countries.

0

50

100

150

200

250


<20

20-39

40-59

60-79

80-89

90-100

30


Figure 27: Distribution of average total income effects per income group in the eurozone

on a cumulative basis from 2010 to 2015 (inclusive), per capita in EUR and expressed in

basis points of average annual income


Figure 28: Distribution of average total income effects per income group on a cumulative

basis from 2010 to 2015 (inclusive), expressed in basis points of average annual income

Source: ECB, own calculations

So at the end of the day, although the zero interest rate policy is having a real impact in

terms of distribution policy, the effects are not as prominent if we look at the EMU region

as a whole, even though the positive income effect, for example, is twice as high,

expressed as a percentage of average income, for the upper middle class as it is for the

lower middle class. The differences at country level, on the other hand, are significant,

although no uniform pattern can be identified. In some countries, the lower income

groups are benefiting the most, whereas in others, it is the income groups in the mid-

field that are reaping the benefits. But there is only one country in which the top income

decile is benefiting the most in relative terms, and that country is Germany.

Asset effects

So what do the assets effects on the individual income groups look like? As with the

calculation of the income effects, the impact of the zero interest rate policy on the

individual asset classes based on the individual asset portfolios can also be calculated

for each income group separately.

0

10

20

30

40

50

60

70

80

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms

Relatively toaverage income

-50

0

50

100

150

200

250

Germany France Spain Italy Netherlands

<20

20-39

40-59

60-79

80-89

90-100

31


In the case of insurance policies and pension funds, the asset effects are negative for all

income groups and increase in line with incomes (see Figure 29). Looking at things in

relative terms and assessing asset losses in relation to average incomes does little to

change this picture. Here, once again, the "losses" continue to rise in line with incomes, at

least at European level. From a distribution policy perspective, this outcome may come

as reassurance. But it also shows that only higher income groups are taking active

measures to set money aside for retirement, which is anything but reassuring from a

social policy perspective.

Figure 29: Distribution of average asset effects per income group in the eurozone on a

cumulative basis from 2010 to 2015 (inclusive), per capita in EUR and expressed in basis

points of average annual income, insurance policies and pension funds


A look at the individual countries, on the other hand, sometimes tells a different story

(see Figure 30). This applies first and foremost to the Netherlands, where the lowest

income group is hit the hardest in relative terms. At almost 2 percent of annual income,

these "asset losses" also reach a relevant size. This explanation lies in the popularity of

company retirement provision, which means that this form of saving for retirement is

extremely common, even in lower income groups.

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

-3.000

-2.500

-2.000

-1.500

-1.000

-500

0

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


32


Figure 30: Distribution of average asset effects per income group on a cumulative basis

from 2010 to 2015 (inclusive), expressed in basis points of average annual income,

insurance policies and pension funds


When it comes to the direct bond holdings of private households, our method produces

positive asset effects. Compared with the "losses" associated with insurance policies and

pension funds, however, they are much less substantial, fluctuating at around 0.1 of

incomes in relative terms (see Figure 31). Another striking fact is that all income groups

are affected to more or less the same extent, with no visible distribution policy effects to

speak of at European level. This only applies to a handful of countries, such as Italy –

where the highest income group benefits the most – or the Netherlands and Belgium,

where the main winners can be found in the lowest income group.27



points of average annual income, bonds


As with insurance policies and pension funds, direct equity holdings also produce

negative asset effects for private households, at least if we look at the entire period since

27 For information on the asset effects for bonds (and all other asset classes) at country level, please refer to Appendix 2.

-200

-175

-150

-125

-100

-75

-50

-25

0


<20

20-39

40-59

60-79

80-90

90-100

0

10

20

30

40

50

60

0

200

400

600

800

1.000

1.200

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


33


2010. These effects are, however, very subtle. Even for the top income group, which has

the most substantial equity holdings, the "loss" only comes in at around EUR 140 (see

Figure 32). In relation to income, these effects are negligible, not just for the eurozone as

a whole but also in the individual countries. All the same, we can see (if we look closer)

that the upper income groups are hit harder in relative terms. This is consistent with the

idea that equities only tend to play any significant role in an individual's personal asset

balance sheet as income levels rise.



points of average annual income, equities


Finally, the asset effects associated with investment funds are positive on balance and

correspond roughly to those associated with direct equity holdings (see Figure 33). There

is no clear distribution policy pattern, with only marginal effects in relation to income in

all income groups. The "fringe groups", however, i.e. the highest and lowest income

groups, seem to benefit the most. Incidentally, this also applies to a large number of

countries, for example Germany, Spain and the Netherlands (see Appendix 2).

-3

-2

-2

-1

-1

0

-160

-140

-120

-100

-80

-60

-40

-20

0

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


34




points of average annual income, investment funds


If all of these individual effects are grouped to arrive at a "total asset effect", the following

picture emerges (see Figure 34): while all income groups have to accept losses, the effect

is relatively weak on balance due to the differences in how the zero interest rate policy

has affected the individual asset classes; even in the top income group, it comes in at less

than EUR 1000 – on a cumulative basis over the last six years. The effects are hardly

significant in relative terms, too, coming in at only around 0.1 percent of annual income

at the most – hardly worthy of being described as real distribution effects. It would,

however, appear that the upper income groups tend to bear the brunt of the "burden". So

at least in a long-term analysis, the zero interest rate policy cannot be said to be first and

foremost to the benefit of the "rich".



points of average annual income, all asset classes


A look at the individual countries, on the other hand, sometimes tells a very different

story (see Figure 35). In Germany, for example, the top income group fares relatively well;

this is likely due to the fact that the Germans tend not to hold a great deal of shares, even

in high income groups. France stands in stark contrast to the German situation. Here, the

0

2

4

6

8

10

12

14

16

18

0

200

400

600

800

1.000

1.200

1.400

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


-16

-14

-12

-10

-8

-6

-4

-2

0

-800

-700

-600

-500

-400

-300

-200

-100

0

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


35


upper income groups tend to be the ones suffering the heftiest "asset losses" precisely

because of their considerable equity holdings. In the Netherlands, on the other hand, the

lowest income group is shouldering the heaviest "losses" due to the impact of insurance

policies and pension funds.

Italy emerges as a special case: here, all income groups are benefiting from the zero

interest rate policy. This is likely to be due primarily to Italian savers' love of bonds: there

is no other EMU country in which private households hold as many bonds – and bonds,

in particular, have emerged as the winners of the low interest rates (so far). In Spain, on

the other hand, only the very lowest income group has reported any positive asset effects.

This once again reflects specific local savings habits: the clear Spanish preference for

buying investment funds; at the same time, insurance policies and pension funds are

relatively uncommon.

Despite these interesting "isolated cases", two conclusions can still be drawn from the

analysis of these asset effects: first of all, these effects are, all in all, fairly insignificant for

the vast majority of the private households in the eurozone; it is only in a handful cases

that the "losses" or "gains" come to more than 0.5 percent of annual income. Second,

there is no clear distribution effect; with the exception, perhaps, of Italy, no evidence can

be found to support the theory that the higher income groups have reaped above-

average benefits from the zero interest rate policy in terms of their asset holdings.


from 2010 to 2015 (inclusive), expressed in basis points of average annual income, all

asset classes


Total distribution effects: Income and asset effects

Although income effects – which are felt directly by households – cannot really be

grouped together with asset effects, which primarily constitute a temporary revaluation

of assets, doing so does, however, prove an informative exercise (see Figure 36).

Grouping the two effects makes it clear that the positive income effects more than

compensate for the negative asset effects in all income classes. What is more, the

consolidated distribution effects are extremely limited, although on the whole, the

groups that benefit the most, as with the income effects, are the income groups in the

-150

-125

-100

-75

-50

-25

0

25

50

75


<20

20-39

40-59

60-79

80-90

90-100

36


mid field. In other words: in a long-term analysis, the asset effects are virtually

insignificant.

Figure 36: Distribution of average income and asset effects per income group in the

eurozone on a cumulative basis from 2010 to 2015 (inclusive), per capita in EUR and

expressed in basis points of average annual income, equities

Source: ECB, EMU interest rate statistics, HFCS.

BOX 3: Distribution impact of asset effects in the long and short term

The previous chapter, which looked at asset effects on the whole, already showed that

the magnitude of these effects depends to a considerable degree on the observation

period selected. In a longer-term analysis, since 2010, "losses" – albeit minor ones – tend

to emerge on balance. The picture is turned completely on its head if we only look at the

years since 2012, which have been characterized by moves to save the euro. This

analysis results in significant "gains". This can be explained by the development of the

European stock markets, which did not bounce back as soon as the low interest rate

policy was implemented, but only once the ECB had laid any fears as to the survival of

the eurozone to rest. This means that, in the short term, excluding the two bad stock

market years of 2010 and 2011, the effects for shares and investment funds are clearly

positive. For insurance policies, pension funds and bonds, on the other hand, virtually

nothing changes, as both of these asset classes remained virtually unaffected by the low

interest rate policy in the first few years.

This naturally also changes the direction and scale of the asset effects for the individual

income groups in the short term, too (see Figure 37). From this angle, it is not only the

case that all income groups can now benefit from "gains". Rather, the effects are no

longer merely marginal either. On the contrary, the highest income group is left with

gains of around EUR 8000, more than one percent of their annual income. In addition,

the short-term analysis would also appear to tell the "feared" distribution story, namely

that it is first and foremost richer households that are benefiting considerably, and

indeed more than most, from the zero interest rate policy and QE as asset prices rise.

-20

-10

0

10

20

30

40

50

60

70

80

-1.000

-500

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

<20 20-39 40-59 60-79 80-89 90-100

Income effect

Wealth effect


37



cumulative basis from 2012 to 2015 (inclusive), per capita in EUR and expressed in

basis points of average annual income, all asset classes


This pattern is repeated at national level, albeit with a number of interesting deviations

(see Figure 38). In Germany, for example, it is mainly low-income households, together

with the top income group, that have been able to report significant positive asset

effects. This is due to the above-average popularity of investment funds among this

income group. This applies all the more so in Spain's case – where the lower income

group holds more investment funds than their counterparts in the middle income class

– meaning that the "poorest" are evidently benefiting the most from the zero interest

rate policy, at least in relative terms. In France and Italy, on the other hand, it is the rich

households that are able to enjoy substantial increases in the value of their asset

portfolios. The same applies to the Netherlands, albeit with one major handicap: here,

the "asset gains" are much lower and the Dutch preference for insurance policies and

pension funds has a negative impact.


from 2012 to 2015 (inclusive), expressed in basis points of average annual income, all

asset classes

Source: ECB, EMU interest rate statistics, HFCS

0

25

50

75

100

125

0

2.000

4.000

6.000

8.000

10.000

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms


-75

-50

-25

0

25

50

75

100

125

150

175


<20

20-39

40-59

60-79

80-90

90-100

38


But the restriction mentioned above also applies to the asset effects for each income

group: these "gains" largely exist on paper and, unlike the income effects, have no

immediate impact on the spending of - and, as a result, on the prosperity actually

experienced by - private households. With asset effects on spending corresponding to 3

percent (see above, page 27), the gains generated by the top income group in the

eurozone, which correspond to around EUR 8000 since 2012, translate into consumer

spending of EUR 60 a year. At any rate, social cohesion is unlikely to be threatened due

to growing inequality emerging from the asset effects of the ECB’s monetary policy

alone.

39


5 Summary of results

The low interest rate policy pursued by the ECB and, in particular, the purchase of

securities (QE) are having a direct and indirect impact on the incomes and assets of

private households in the euro area. As a result, they automatically have implications for

distribution policy, both within and between countries. This paper is an attempt to

quantify these effects. Our approach involved three steps: first, we looked at the direct

impact that changes in the interest rates for bank deposits and loans are having on

incomes; second, we examined the effect the low interest rates are having on asset prices

and finally, we took a closer look at the individual implications for the portfolios of

different income groups. The results of this analysis can be summarized as follows.

Income effects

All in all, private households in the euro area are benefiting from the low

interest rate policy: over the past six years (2010 to 2015, inclusive), the

cumulative "gains" have come in at EUR 130bn (1.4 percent of GDP) or EUR 400

per capita.

Among the biggest winners are the peripheral countries such as Portugal,

Greece and Spain: in all of these countries, the cumulative "interest gains" have

exceeded EUR 1,200 per capita since 2010; in Portugal and Greece, these gains

came in at around 12 percent of GDP, compared with 6 percent in Spain.

Germany, on the other hand (together with Belgium and Slovakia), ranks

among the losers: German households have certainly had to digest "losses" over

the past six years, with the figure amounting to a total of EUR 367 per capita or

EUR 29.8bn (-1.1 percent of GDP).

Conclusion: the ECB's zero interest rate policy is having a clear redistribution effect

between the EMU countries via the income channel.

Asset effects

For the entire period since 2010, private households in the eurozone are left

with losses to the tune of EUR 130bn. This corresponds to precisely one percent

of the assets included in our analysis (as at the end of 2014). Different

investment preferences, however, mean that the effects also vary from country

to country.

As monetary policy has gradually been expanded to include unconventional

measures, the stronger the negative impact on insurance policies and pension

funds has become: for this year alone, we expect this asset class to report losses

of around EUR 200bn; this is around half the gross written premiums that all

eurozone life insurers are expected to generate.

In a shorter-term analysis, namely since the ECB launched its explicit euro

rescue policy, the overall picture is a different one: since 2012, eurozone private

households in all asset classes have been generating "gains" of EUR 1100bn (8.2

percent); this is primarily due to the positive developments on the stock market.

But these "gains" should also be taken with a pinch of salt: the increases in value

only exist "on paper" for the time being, and the direct consumption effects –

and, as a result, prosperity effects – are likely to be much lower. If we use a

common approach and assume an asset effect on spending of 3 percent, then

this effect would correspond to an average of around EUR 10bn a year over the

past four years – or 0.1 percent of the eurozone's economic output.

40


So all in all, the asset effects resulting from the zero interest rate policy are fairly

insignificant in a longer-term comparison. Positive effects only become clearly visible

from the start of the explicit euro rescue policy.

Distribution effects

At European level, while the positive income effects continue to increase the

further up the income ladder we go, it is the upper-mid income group that is

benefiting the most in relative terms.

The effects on the individual income groups vary considerably from country to

country. In Germany, the highest income group is also the group that benefits

the most in relative terms, while the lowest income group either benefits the

least or actually loses out. No other EMU country shows the same sort of

"redistribution from the bottom to the top".

When it comes to the asset effects, all income groups have been hit by "losses".

At 0.1 percent of the respective average incomes, however, they can hardly be

described as significant, meaning that there are no distribution effects to speak

of. In the shorter term, however, the higher income groups reap above-average

benefits.

In summary, there is no evidence suggesting that the higher income groups are being

favored by the low interest rate policy; Germany is the country where this theory is

closest to being turned into a reality.

The actual implications of the ECB's zero interest rate policy only emerge upon closer

inspection, namely when we compare countries, wealth classes and income groups; if we

restrict ourselves to the overall picture, they remain hidden. This applies to the direct

income effects, which are positive on the whole, but differ enormously from country to

country. It also applies to the asset effects, which not only vary depending on the period

of time we choose to examine, but, first and foremost, also vary considerably from asset

class to asset class. And it also applies to the different income groups, where the winners

and losers of the zero interest rate policy are certainly not always found on the rungs of

the income ladder you would expect to find them on.

So all in all, the impact of the zero interest rate policy is an inconsistent one. Particularly

for Germany, however, private households rank among the "losers" in terms of both

income and asset effects; what is more, the zero interest rate policy is favoring the

country's higher income groups – albeit not to too great an extent. So it comes as little

surprise that the ECB is a frequent target of criticism in Germany, in particular, with its

monetary policy.

41


Appendix I: Methods

Bank deposits and loans

The calculation of the "interest gains and losses" is based on the ECB's EMU statistics,

which stretch back to 2003.

The annual interest rates are calculated as the average of the weighted monthly interest

rates. The following deposit and loan categories are taking into account:

Loans for house purchases (mortgage loans)

Consumer loans

Other loans

Savings deposits

Term deposits

Overnight money deposits

Overdraft loans and credit lines for credit cards have not been taken into account for

both systematic and statistical reasons.

Certain time series of deposit categories had to be excluded due to a lack of available

data.28 For those EMU countries included in the survey that only joined the single

currency in 200329, the data series is shorter30. In the event that the data series for interest

rates and volumes do not match, the longest available period of time for which both sets

of data are available is used. Smaller gaps within time series were interpolated. 31 If data

is not reported by the ECB, the national databases are used. 32

For the years from 2010 onwards, we have calculated hypothetical interest payments

(made and received) based on the average interest rates in the pre-crisis years of 2003 -

2008. The differences between these payments and the actual interest payments (made

and received) correspond to the "gains" (interest payments saved on loans) and "losses"

(interest payments on deposits that have been missed out on) of private households.

These "gains" and "losses" are cumulated for the years from 2010 to 2015 (inclusive), with

the figures for 2015 being extrapolated based on the data for the first four months of the

year.

Insurance and pension funds

The effect of the low interest rates on insurance policies and pension funds is calculated

based on the average annual asset bases; the data taken as a basis comes from the 2015

Allianz Global Wealth Report. To arrive at an approximate estimate of returns, we have

used the average yield on 10-year euro government bonds; this is based on the implicit

assumption that the insurers and pension funds have well diversified portfolios. As with

bank deposits and loans, the average return for the years from 2003 to 2008 acts as the

point of reference. "Gains" and "losses" are the difference between current and

hypothetical returns. The projection for 2015 is based on the current returns for the first

six months and on a forward projection of asset values based on historical growth

figures.

28 Austria, Greece and Portugal: interest rates for savings deposits are reported neither by the ECB nor by the

national central bank either because this deposit category is not relevant or for reasons relating to the

protection of legitimate expectations. 29 All EMU countries with the exception of Cyprus, Malta and the Baltic states. 30 Slovakia and Slovenia. 31 Slovenia: Savings deposits for November and December 2005. 32 Belgium: Overnight money deposits; Italy: Savings deposits; Ireland: Overnight money deposits.

42


Bonds, equities and investment funds

For the other asset classes, we have used the year-end levels in private household

portfolios; this data was once again taken from the 2015 Allianz Global Wealth Report. In

order to approximate the annual performance, we have used the Dow Jones Euro Stoxx

50 Price Index (DJES50I) for shares and the Barclays Euro Aggregate Government Index

(LHAGOVE) for bonds. This, in turn, implies that private households also have a fairly

broadly diversified portfolio. Although this is unlikely to be the case across the board, this

approach allows us to arrive at a more systematic assessment of the impact of the low

interest rates, as the impact of the ECB's policy was largely designed to be felt at

European level and not so much at national level, which is more exposed to special

effects. For the cosmos of investment funds, we have approximated performance by

creating a hybrid indicator that mirrors the current structure of the European fund

industry. In all cases, the value gains or losses arise by multiplying the year-end levels by

the performance indicators. The 2015 figures are based on a simple extrapolation of the

values for the first half-year. The "gains" and "losses" are once again the difference

between the current and the hypothetical changes in value based on the average

performance in the period from 2003 to 2008 (shares: 2002 to 2007).

Real effects

All calculations are based on nominal figures, i.e. no adjustments are made for inflation.

In some areas, however, it would also appear to make sense to look at the real figures,

after adjustments for inflation. In order to arrive at these figures, we have used the

national rate of inflation for consumer prices, as published by Eurostat. This does

nothing to change the calculation method; for bank deposits and loans, for example, only

the real interest rate is used, i.e. (nominal) interest less national inflation.


In order to assess the distribution effects, we have used the data from the ECB's large-

scale asset survey entitled, “The Eurosystem Household Finance and Consumption

Survey” (HFCS), which was published in 2013. We were able to use this data to create an

ideal, typical asset portfolio for each income group and country. "Gains" and "losses" are

calculated as set out above and we have shown the results both as absolute figures in

euros and expressed as a percentage of the average income for each group. Unlike the

data for the entire household sector, the detailed data for each income group is only

available for one cut-off date. As a result, the calculations of the "gains" and "losses" are

static, i.e. they ignore changes in the portfolios over time due to fund inflows and

outflows. Another major difference relates to the data taken as a basis: distribution data

is collected using surveys. This results, in some cases, in considerable deviations from

the values set out in the official wealth accounts (and to which the Allianz Global Wealth

Report also refers).

Economic Research Working Paper / Nr. 190 / 04.08.2015

Appendix II: Countries

EURO AREA

Gains and losses (EUR m, %)

Gains and losses per asset class (EUR m)

Income effects per income group (EUR, bp)

Gains and losses per year

Year Gains

(EUR m) Losses

(EUR m) Balance (EUR m)

Balance per capita (EUR)

2010 51 299 -38 269 13 030 40

2011 53 266 -30 075 23 191 70

2012 61 554 -28 424 33 130 100

2013 77 523 -48 601 28 921 87

2014 85 572 -66 502 19 070 57

2015 94 574 -79 449 15 125 45

Sum 423 787 -291 320 132 467 400

Gains and losses per year (EUR m)

Year Insurance/ pensions

Bonds Equity Mutual funds 2010 -22 250 -15 859 -326 364 -66 051

2011 21 119 6 320 -700 532 -128 157

2012 -7 940 94 227 271 838 93 195

2013 -64 741 -16 283 443 313 83 789

2014 -131 063 108 795 -131 601 38 707

2015 -202 572 -52 225 497 347 75 715

Sum -407 448 124 975 54 001 97 197

Asset effects per income group (EUR, bp)

1,4%

0,0%

1,0%

2,0%

3,0%

4,0%

0

50.000

100.000

150.000

200.000

Loans and deposits Per GDP 2014

2015

2014

2013

2012

2011

2010

-2.000.000

-1.000.000

0

1.000.000

2.000.000

Insuranceand

pensions

Bonds Equity MutualFunds

2015

2014

2013

2012

2011

2010

0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100

Absolute terms (left scale) Relatively to income (right scale)

-20

-15

-10

-5

0

-1.000

-750

-500

-250

0

<20 20-39 40-59 60-79 80-89 90-100


Income effects

Asset effects


44


AUSTRIA





Year Gains

(EUR m) Losses



2010 2 315 -2 400 -85 -10

2011 2 365 -2 248 117 14

2012 2 921 -2 411 509 61

2013 3 582 -3 325 257 30

2014 3 667 -3 771 -103 -12

2015 4 060 -4 129 -69 -8

Sum 18 910 -18 284 626 75



Bonds Equity Mutual funds 2010 -431 -503 -9 849 -1 884

2011 399 218 -22 265 -4 054

2012 -148 3 260 9 111 2 914

2013 -1 194 -591 14 231 2 594

2014 -2 354 4 323 -3 932 1 147

2015 -3 537 -2 262 14 611 2 232

Sum -7 265 4 445 1 907 2 949


0,2%

-1,0%

0,0%

1,0%

2,0%

3,0%

-500

0

500

1.000

1.500


2015

2014

2013

2012

2011

2010

-50.000

-25.000

0

25.000

50.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-50.000

-25.000

0

25.000

50.000

V&P Anleihen Aktien IF

2015

2014

2013

2012

2011

2010

-30

-20

-10

0

10

-1.200

-800

-400

0

400

<20 20-39 40-59 60-79 80-89 90-100


0

10

20

30

40

0

400

800

1.200

1.600

<20 20-39 40-59 60-79 80-89 90-100


Income effects

Asset effects


45


BELGIUM





Year Gains

(EUR m) Losses


Balance per capita (EUR )

2010 709 -1 625 -916 -85

2011 867 -1 804 -936 -85

2012 967 -2 258 -1 291 -116

2013 1 405 -3 109 -1 704 -153

2014 1 925 -3 815 -1 890 -169

2015 2 632 -4 609 -1 978 -174

Sum 8 504 -17 219 -8 715 -782



Bonds Equity Mutual funds 2010 -927 -1 157 -24 349 -5 460

2011 885 459 -53 078 -10 151

2012 -332 7 421 23 905 7 821

2013 -2 711 -1 238 36 378 6 956

2014 -5 346 8 219 -10 885 3 233

2015 -8 163 -4 090 40 729 6 581

Sum -16 594 9 614 12 701 8 980


-2,3%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

-10.000

-7.500

-5.000

-2.500

0


2015

2014

2013

2012

2011

2010

-120.000

-60.000

0

60.000

120.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-100

-50

0

50

100

-2.000

-1.000

0

1.000

2.000

<20 20-39 40-59 60-79 80-89 90-100


-100

0

100

200

300

-1.000

0

1.000

2.000

3.000

<20 20-39 40-59 60-79 80-89 90-100


Income effects

Asset effects


46


FINLAND





Year Gains

(EUR m) Losses



2010 2 092 -501 1 591 297

2011 1 860 -409 1 450 270

2012 2 301 -470 1 832 339

2013 2 969 -773 2 196 405

2014 2 964 -867 2 097 385

2015 3 095 -913 2 182 398

Sum 15 281 -3 932 11 349 2 094



Bonds Equity Mutual funds 2010 -166 -61 -7 612 -812

2011 153 31 -18 471 -1 853

2012 -56 427 6 668 1 230

2013 -472 -82 11 384 1 177

2014 -949 785 -3 392 563

2015 -1 436 -463 12 422 1 114

Sum -2 926 638 1 000 1 419


6,1%

0,0%

5,0%

10,0%

15,0%

20,0%

0

3.000

6.000

9.000

12.000


2015

2014

2013

2012

2011

2010

-40.000

-20.000

0

20.000

40.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

0

60

120

180

240

0

3.000

6.000

9.000

12.000

<20 20-39 40-59 60-79 80-89 90-100


-10

-5

0

5

10

-120

-60

0

60

120

<20 20-39 40-59 60-79 80-89 90-100


-10

-5

0

5

10

-120

-60

0

60

120

<20 20-39 40-59 60-79 80-89 90-100

Absolute Werte in Euro (linke Skala)

In Bp des Jahresdurchschnittseinkommens (rechte Skala)

Income effects

Asset effects


47


FRANCE





Year Gains

(EUR m) Losses



2010 7 980 -8 459 -479 -8

2011 10 332 -6 279 4 053 64

2012 11 943 -5 583 6 359 100

2013 14 900 -9 751 5 149 81

2014 16 739 -12 773 3 967 60

2015 18 355 -14 200 4 156 63

Sum 80 250 -57 045 23 205 361




2011 5 499 408 -173 838 -26 299

2012 -2 031 5 870 68 115 20 232

2013 -16 527 -1 144 112 623 18 553

2014 -32 946 8 184 -32 797 8 002

2015 -50 100 -4 226 124 377 13 257

Sum -101 941 8 016 21 603 19 683


1,1%

-1,0%

0,0%

1,0%

2,0%

3,0%

-10.000

0

10.000

20.000

30.000


2015

2014

2013

2012

2011

2010

6,1%

0,0%

5,0%

10,0%

15,0%

20,0%

0

3.000

6.000

9.000

12.000


2015

2014

2013

2012

2011

2010

1,1%

-1,0%

0,0%

1,0%

2,0%

3,0%

-10.000

0

10.000

20.000

30.000

Bankkredite und -einlagen

In Prozent des BIP

2015

2014

2013

2012

2011

2010

-400.000

-200.000

0

200.000

400.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-40.000

-20.000

0

20.000

40.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-400.000

-200.000

0

200.000

400.000


2015

2014

2013

2012

2011

2010

0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100


0

60

120

180

240

0

3.000

6.000

9.000

12.000

<20 20-39 40-59 60-79 80-89 90-100


1,1%

-1,0%

0,0%

1,0%

2,0%

3,0%

-10.000

0

10.000

20.000

30.000


2015

2014

2013

2012

2011

2010

0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100



-100

-75

-50

-25

0

-8.000

-6.000

-4.000

-2.000

0

<20 20-39 40-59 60-79 80-89 90-100


-100

-75

-50

-25

0

-8.000

-6.000

-4.000

-2.000

0

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


48


GERMANY





Year Gains

(EUR m) Losses



2010 9 007 -14 645 -5 637 -69

2011 11 189 -14 360 -3 171 -39

2012 14 592 -17 340 -2 748 -34

2013 19 120 -24 565 -5 445 -66

2014 23 086 -29 190 -6 104 -76

2015 26 253 -32 978 -6 725 -83

Sum 103 247 -133 077 -29 830 -367




2011 5 997 1 228 -93 270 -40 747

2012 -2 254 17 261 37 078 29 541

2013 -18 617 -2 927 60 404 26 090

2014 -37 381 20 317 -17 618 11 537

2015 -56 372 -10 619 67 141 22 151

Sum -115 002 22 162 11 136 28 354


-1,1%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

-40.000

-30.000

-20.000

-10.000

0


2015

2014

2013

2012

2011

2010

-1,1%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

-40.000

-30.000

-20.000

-10.000

0


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-200.000

-100.000

0

100.000

200.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-200.000

-100.000

0

100.000

200.000


2015

2014

2013

2012

2011

2010

-50

0

50

100

150

-1.000

0

1.000

2.000

3.000

<20 20-39 40-59 60-79 80-89 90-100


-50

0

50

100

150

-1.000

0

1.000

2.000

3.000

<20 20-39 40-59 60-79 80-89 90-100



-20

-15

-10

-5

0

-1.000

-750

-500

-250

0

<20 20-39 40-59 60-79 80-89 90-100


-20

-15

-10

-5

0

-1.000

-750

-500

-250

0

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


49


GREECE





Year Gains

(EUR m) Losses



2010 1 606 55 1 661 148

2011 1 255 840 2 095 188

2012 1 682 1 418 3 099 280

2013 3 935 1 121 5 056 460

2014 4 283 -131 4 151 381

2015 4 270 -760 3 509 320

Sum 17 030 2 542 19 572 1 777




2011 42 74 -4 400 -325

2012 -15 860 1 337 147

2013 -121 -180 2 754 149

2014 -231 857 -2 516 71

2015 -334 -163 7 965 289

Sum -705 1 260 1 645 64


12,0%

0,0%

5,0%

10,0%

15,0%

20,0%

0

5.000

10.000

15.000

20.000


2015

2014

2013

2012

2011

2010

12,0%

0,0%

5,0%

10,0%

15,0%

20,0%

0

5.000

10.000

15.000

20.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-20.000

-10.000

0

10.000

20.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-20.000

-10.000

0

10.000

20.000


2015

2014

2013

2012

2011

2010

0

50

100

150

200

0

1.250

2.500

3.750

5.000

<20 20-39 40-59 60-79 80-89 90-100


0

50

100

150

200

0

1.250

2.500

3.750

5.000

<20 20-39 40-59 60-79 80-89 90-100



-12

-8

-4

0

4

-120

-80

-40

0

40

<20 20-39 40-59 60-79 80-89 90-100


-12

-8

-4

0

4

-120

-80

-40

0

40

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


50


IRELAND





Year Gains

(EUR m) Losses



2010 1 762 -182 1 580 347

2011 987 -92 894 196

2012 1 111 -60 1 051 229

2013 1 161 -530 630 137

2014 1 431 -899 532 115

2015 1 344 -1 049 296 64

Sum 7 796 -2 813 4 982 1 089



Bonds Equity Mutual funds 2010 -520 -2 -5 285 n/a

2011 490 1 -10 596 n/a

2012 -186 14 4 279 n/a

2013 -1 575 -2 6 590 n/a

2014 -3 348 20 -1 717 n/a

2015 -5 424 -44 6 266 n/a

Sum -10 564 -15 -462 n/a


2,9%

0,0%

1,0%

2,0%

3,0%

4,0%

0

2.000

4.000

6.000

8.000


2015

2014

2013

2012

2011

2010

2,9%

0,0%

1,0%

2,0%

3,0%

4,0%

0

2.000

4.000

6.000

8.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-20.000

-10.000

0

10.000

20.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-20.000

-10.000

0

10.000

20.000


2015

2014

2013

2012

2011

2010

Not available Not available

Income effects

Asset effects


n/a

51


ITALY





Year Gains

(EUR m) Losses



2010 8 577 -3 339 5 238 88

2011 9 239 -2 009 7 230 122

2012 10 605 1 207 11 812 199

2013 11 784 47 11 831 198

2014 11 744 -1 782 9 962 164

2015 12 604 -3 498 9 106 149

Sum 64 553 -9 374 55 179 921




2011 2 472 3 451 -182 274 -25 034

2012 -905 50 703 62 901 17 636

2013 -7 383 -8 682 111 251 16 829

2014 -15 181 58 529 -32 317 7 728

2015 -23 565 -27 598 122 307 16 479

Sum -47 217 67 616 -4 569 21 233


3,6%

0,0%

1,0%

2,0%

3,0%

4,0%

0

20.000

40.000

60.000

80.000


2015

2014

2013

2012

2011

2010

3,6%

0,0%

1,0%

2,0%

3,0%

4,0%

0

20.000

40.000

60.000

80.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-400.000

-200.000

0

200.000

400.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-400.000

-200.000

0

200.000

400.000

Anleihen Aktien IF MutualFunds

2015

2014

2013

2012

2011

2010

0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100


0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100



0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100


0

20

40

60

80

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


52


LUXEMBOURG





Year Gains

(EUR m) Losses



2010 499 -644 -145 -289

2011 439 -582 -143 -280

2012 547 -677 -130 -247

2013 610 -812 -202 -376

2014 657 -855 -198 -361

2015 751 -905 -154 -274

Sum 3 502 -4 475 -973 -1 827



Bonds Equity Mutual funds 2010 n/a n/a n/a n/a

2011 n/a n/a n/a n/a





Sum n/a n/a n/a n/a


a

-2,1%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

-1.000

-750

-500

-250

0


2015

2014

2013

2012

2011

2010

-2,1%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

-1.000

-750

-500

-250

0


In Prozent des BIP

2015

2014

2013

2012

2011

2010Not available

0

50

100

150

200

0

2.500

5.000

7.500

10.000

<20 20-39 40-59 60-79 80-89 90-100


0

50

100

150

200

0

2.500

5.000

7.500

10.000

<20 20-39 40-59 60-79 80-89 90-100



-20

0

20

40

60

-2.000

0

2.000

4.000

6.000

<20 20-39 40-59 60-79 80-89 90-100


-20

0

20

40

60

-2.000

0

2.000

4.000

6.000

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


53


NETHERLANDS





Year Gains

(EUR m) Losses



2010 1 220 -315 906 55

2011 1 217 234 1 451 87

2012 1 515 557 2 072 124

2013 2 200 -1 307 893 53

2014 3 049 -2 289 760 45

2015 3 733 -2 949 784 46

Sum 12 934 -6 068 6 866 410



Bonds Equity Mutual funds 2010 -3 813 -294 -18 286 -2 536

2011 3 856 108 -39 027 -5 416

2012 -1 537 1 336 16 175 3 419

2013 -12 257 -207 22 765 3 069

2014 -25 383 1 142 -6 561 1 382

2015 -41 541 -520 23 322 2 750

Sum -80 674 1 566 -1 612 2 668


1,1%

0,0%

1,0%

2,0%

3,0%

4,0%

0

2.500

5.000

7.500

10.000


2015

2014

2013

2012

2011

2010

1,1%

0,0%

1,0%

2,0%

3,0%

4,0%

0

2.500

5.000

7.500

10.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-100.000

-50.000

0

50.000

100.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-100.000

-50.000

0

50.000

100.000


2015

2014

2013

2012

2011

2010

0

50

100

150

200

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100


0

50

100

150

200

0

1.000

2.000

3.000

4.000

<20 20-39 40-59 60-79 80-89 90-100



-160

-120

-80

-40

0

-2.400

-1.800

-1.200

-600

0

<20 20-39 40-59 60-79 80-89 90-100


-160

-120

-80

-40

0

-2.400

-1.800

-1.200

-600

0

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


54


PORTUGAL





Year Gains

(EUR m) Losses



2010 3 070 -686 2 384 225

2011 2 346 435 2 781 263

2012 2 682 1 037 3 719 353

2013 3 376 490 3 866 369

2014 3 244 58 3 302 317

2015 3 356 -519 2 836 274

Sum 18 074 814 18 888 1 800




2011 264 97 -16 599 -1 580

2012 -85 1 231 6 353 910

2013 -674 -275 9 364 789

2014 -1 356 1 908 -2 742 348

2015 -2 064 -768 9 716 584

Sum -4 228 1 994 -1 679 164


11,9%

0,0%

5,0%

10,0%

15,0%

20,0%

0

5.000

10.000

15.000

20.000


2015

2014

2013

2012

2011

2010

11,9%

0,0%

5,0%

10,0%

15,0%

20,0%

0

5.000

10.000

15.000

20.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-40.000

-20.000

0

20.000

40.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-40.000

-20.000

0

20.000

40.000


2015

2014

2013

2012

2011

2010

0

100

200

300

400

0

2.000

4.000

6.000

8.000

<20 20-39 40-59 60-79 80-89 90-100


0

100

200

300

400

0

2.000

4.000

6.000

8.000

<20 20-39 40-59 60-79 80-89 90-100



-12

-8

-4

0

4

-300

-200

-100

0

100

<20 20-39 40-59 60-79 80-89 90-100


-12

-8

-4

0

4

-300

-200

-100

0

100

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


55


SLOVAKIA





Year Gains

(EUR m) Losses



2010 -240 -239 -479 -89

2011 -210 -225 -435 -81

2012 -196 -188 -384 -71

2013 -168 -256 -424 -78

2014 -83 -346 -429 -79

2015 -5 -410 -414 -76

Sum -901 -1 665 -2 566 -475



Bonds Equity Mutual funds 2010 -33 -1 -13 -131

2011 34 3 -27 -283

2012 -14 67 11 190

2013 -116 -11 20 178

2014 -239 93 -4 86

2015 -412 -41 16 184

Sum -780 111 1 224


-3,8% -4,0%

-3,0%

-2,0%

-1,0%

0,0%

-4.000

-3.000

-2.000

-1.000

0


2015

2014

2013

2012

2011

2010

-3,8% -4,0%

-3,0%

-2,0%

-1,0%

0,0%

-4.000

-3.000

-2.000

-1.000

0


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-1.000

-500

0

500

1.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-1.000

-500

0

500

1.000


2015

2014

2013

2012

2011

2010

-100

-75

-50

-25

0

-1.200

-900

-600

-300

0

<20 20-39 40-59 60-79 80-89 90-100


-100

-75

-50

-25

0

-1.200

-900

-600

-300

0

<20 20-39 40-59 60-79 80-89 90-100



-12

-8

-4

0

4

-150

-100

-50

0

50

<20 20-39 40-59 60-79 80-89 90-100


-12

-8

-4

0

4

-150

-100

-50

0

50

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


56


SLOVENIA





Year Gains

(EUR m) Losses



2010 151 -16 135 66

2011 143 7 149 73

2012 181 30 211 102

2013 231 4 236 114

2014 227 -91 136 66

2015 243 -160 83 40

Sum 1 176 -226 950 462



Bonds Equity Mutual funds 2010 -21 -6 -960 -68

2011 20 2 -1 929 -137

2012 -7 34 707 84

2013 -60 -5 1 059 71

2014 -122 31 -290 30

2015 -197 -14 1 099 62

Sum -388 43 -315 41


2,8%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

0

100

200

300

400

500

600

700

800

900

1.000


2015

2014

2013

2012

2011

2010

2,8%

0,0%

1,0%

2,0%

3,0%

4,0%

0

250

500

750

1.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-4.000

-2.000

0

2.000

4.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-4.000

-2.000

0

2.000

4.000


2015

2014

2013

2012

2011

2010

0

50

100

150

200

0

400

800

1.200

1.600

<20 20-39 40-59 60-79 80-89 90-100


0

50

100

150

200

0

400

800

1.200

1.600

<20 20-39 40-59 60-79 80-89 90-100



-30

-20

-10

0

10

-300

-200

-100

0

100

<20 20-39 40-59 60-79 80-89 90-100


-30

-20

-10

0

10

-300

-200

-100

0

100

<20 20-39 40-59 60-79 80-89 90-100



Income effects

Asset effects


57


SPAIN





Year Gains

(EUR m) Losses



2010 10 909 -1 042 9 867 212

2011 10 024 632 10 657 228

2012 9 742 385 10 128 216

2013 13 358 -968 12 390 265

2014 13 663 -4 534 9 128 196

2015 14 641 -6 900 7 741 167

Sum 72 337 -12 427 59 910 1 285


Jahr Versicherungen/ Pensionsfonds

Anleihen Aktien Investment-fonds

2010 -1 117 -489 -42 833 -7 321

2011 1 005 239 -84 756 -12 278

2012 -367 5 741 34 382 9 062

2013 -3 011 -939 53 057 7 324

2014 -6 148 4 384 -16 395 4 577

2015 -9 448 -1 403 66 716 10 022

Summe -19 085 7 534 10 171 11 387


6,0%

0,0%

5,0%

10,0%

15,0%

20,0%

0

20.000

40.000

60.000

80.000


2015

2014

2013

2012

2011

2010

6,0%

0,0%

5,0%

10,0%

15,0%

20,0%

0

20.000

40.000

60.000

80.000


In Prozent des BIP

2015

2014

2013

2012

2011

2010

-200.000

-100.000

0

100.000

200.000

Insuranceand

pensions


2015

2014

2013

2012

2011

2010

-200.000

-100.000

0

100.000

200.000


2015

2014

2013

2012

2011

2010

0

60

120

180

240

0

2.000

4.000

6.000

8.000

<20 20-39 40-59 60-79 80-89 90-100


0

60

120

180

240

0

2.000

4.000

6.000

8.000

<20 20-39 40-59 60-79 80-89 90-100



-120

-80

-40

0

40

-600

-400

-200

0

200

<20 20-39 40-59 60-79 80-89 90-100


Income effects

Asset effects


Group Economic Research Working Paper/no. xy/July 31, 2015

These assessments are, as always, subject to the disclaimer provided below.

ABOUT ALLIANZ

Together with its customers and sales partners, Allianz is one of the strongest financial communities. About

85 million private and corporate customers insured by Allianz rely on its knowledge, global reach, capital strength and

solidity to help them make the most of financial opportunities and to avoid and safeguard themselves against risks. In

2014, around 147,000 employees in over 70 countries achieved total revenues of 122.3 billion euros and an operating

profit of 10.4 billion euros. Benefits for our customers reached 104.6 billion euros.

This business success with insurance, asset management and assistance services is based increasingly on customer

demand for crisis-proof financial solutions for an aging society and the challenges of climate change. Transparency

and integrity are key components of sustainable corporate governance at Allianz SE.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained herein may include prospects, statements of future expectations and other forward -looking

statements that are based on management's current views and assumptions and involve known and unknown risks

and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such

forward-looking statements.

Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive

situation, particularly in the Allianz Group's core business and core markets, (ii) performance of financial markets

(particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events,

including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and

trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate

levels, (viii) currency exchange rates including the euro/US-dollar exchange rate, (ix) changes in laws and regulations,

including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization

measures, and (xi) general competitive factors, in each case on a local, regional , national and/or global basis. Many of

these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their

consequences.

NO DUTY TO UPDATE

The company assumes no obligation to update any information or forward -looking statement contained herein, save

for any information required to be disclosed by law.

Documents

Working Paper 190 - Allianz · The ECB's zero interest rate policy is having a direct impact on bank interest rates – and a knock-on effect on the wallets of private households: