Mario Draghi has slashed interest rates to zero, provided huge liquidity to banks and massively expanded the central bank's balance sheet -- and still the euro-zone economy hasn't taken off. Bad news for any company operating in the region.
The most often cited reason for this is Europe's broken banking system, which has sucked up unprecedented quantities of liquidity and failed to pass much of it on to consumers.
But there's another, less obvious, factor that could be at work: the region's aging population. And that won't go away -- even if Draghi fixes the banks.
Europe's population is aging faster than the U.S. Having fewer workers to support a larger number of retirees is a problem if you want the economy to grow or balance the budget.
But an aging population can also limit the effectiveness of monetary policy, something that's arguably less well understood. To see why, it helps to think how quantitative easing can stimulate economic activity.
Take the first route: the credit channel. QE should encourage banks to provide more loans to borrowers, which together with low interest rates should stimulate growth.
It's arguably the most important channel because the euro zone is more dependent on bank lending compared to the U.S. Lending conditions have improved in the eurozone but credit expansion remains rather modest given the low level of interest rates.
To be sure, that's mostly because euro-zone banks' balance sheets are still bombed out, and households have been trying to cut borrowing since the financial crisis.
But demand for loans may also be limited for another reason: older people have a smaller propensity to borrow. Theory suggests people in their 20s and 30s are usually more responsive to changes in interest rates because they borrow to fund their education, buy a house, and to start a family.
But these days, young people are a proportionately smaller cohort in Europe, and they're getting married and having children later. Youth unemployment also remains high. Rising house prices mean obtaining a mortgage to buy a home is a pipe dream for many young folks. So credit demand remains weak.
Next, consider the risk channel: falling yields on government bonds should force investors into riskier assets such as stocks.
Corporate bond yields have tumbled in Europe and house prices are climbing fast in some countries, including Germany. However, portfolio re-balancing hasn't really extended to the stock market.
The equity risk premium -- the additional return investors demand to hold stocks instead of risk-free assets, typically government bonds -- remains high in the eurozone.
There are a bunch of reasons for this, including worries about volatility, the sovereign debt crisis, weak economic growth and corporate profits, plus the banks (again).
But demography may also be playing a small role: older people tend to be more risk averse because they don't want their investments eradicated by a stock market crash. Savers typically switch into safer assets like bonds and cash as they near retirement.
In theory, a larger number of old people implies less local demand for equities. Banks and non-financial companies therefore face a high cost of equity in the eurozone, which inhibits lending and investment, as Gadfly explained here.
Lastly, consider the wealth channel: rising asset prices should make people feel richer and buy more stuff.
Old people have more financial assets than younger people and therefore profit more from any increase in property, equity and bond prices triggered by QE. Their spending on things like healthcare and travel should be positive for economic activity, and therefore corporates.
But, the wealth effect of QE in Europe is likely to be less than in the U.S. Draghi bemoaned in a recent speech that U.S. households allocate a third of their financial assets to equities whereas for France and Italy the figure is a fifth and for Germany only one tenth.
Germans also hold almost 40 percent their assets in cash and bank deposits (which compares to less than 15 percent for U.S. households, according to Draghi).
Older folks who hold only these low-yielding assets to fund their retirement or who are worried by widening deficits in public and private sector pension plans -- another consequence of QE which Gadfly wrote about here -- aren't likely to raise their consumption.
Because they don't enjoy as many of the benefits of QE it's no surprise German pensioners are among Draghi's most vocal opponents. But they aren't just a political headache for Draghi. Their saving habits limit the ECB's chances of stimulating demand, and that hurts all European companies.
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This paper from IMF economist Patrick Imam explains this very clearly.
This report by Natixis chief economist Patrick Artus give a much fuller breakdown.
That's because they can usually self-finance their consumption, according to Amlan Roy, head of global demographics and pensions research at Credit Suisse.
See: "Boomer Retirement: Headwinds for U.S. Equity Markets?"
That is unless non-European buyers step in.
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