Euro zone: Financial repression continues

Financial repression is a set of policies and regulations that favours government financing at the expense of private sector financing and savers. However, financial repression is now dramatic in the euro zone: Given the prudential rules for insurers, they hold government bonds despite the very low or negative interest rates; The ECB's funding of banks at -1% has driven them to buy government bonds, even with negative long-term yields. Financial repression is dangerous: It generates a crowding-out of private sector financing; It reduces the profitability of financial intermediaries, whereas we would like them to strengthen their capital; It gives rise to a massive interest rate risk on the balance sheets of financial intermediaries; It correlates banking risk and sovereign risk; It impoverishes future savers/pensioners.