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The monetarists are hopeful that boosting bank profitability will lead to an expansion of lending to business and households and get the Eurozone out of its renewing depression. This assumes that the problem is the banks not being prepared to lend because it is not profitable for them. But is that the reason for low loan growth rates and investment? It’s not the supply of money or bank profitability that is the problem, but the demand for loans. Nobody wants to borrow to invest or spend even at zero or negative rates, because revenues and profits are stagnant, inflation and wage growth are low and, above all, export trade has collapsed.
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