Why are long-term interest rates low in the euro zone? A key question

Long-term interest rates are very low in the euro zone. This very low level of long-term interest rates has considerable effects on the economies, in particular by maintaining the fiscal solvency of even highly indebted countries. To determine whether long-term interest rates will remain very low for a long time in the euro zone , we have to know why they are very low in the first place. There are three possible explanations: excess savings and demand for risk-free bonds; ECB’s monetary policy being highly expansionary due to the low level of inflation; the ECB’s monetary policy being highly expansionary because it is determined to keep the most fragile countries fiscally solvent. These three explanations have very different consequences for the future trajectory of long-term interest rates in the euro zone and therefore for the euro-zone countries’ fiscal policy strategy.