The president of the European Central Bank, Mario Draghi, lashed out at hawks today and argued there is no current alternative for low interest rates.
In a speech given to the Asian Development Bank, Draghi acknowledged that low interest rates are not harmless, as they put pressure on the business model of financial institutions by squeezing interest income at a time when profitability is already weak.
However, he said they are a symptom of an underlying problem, rather than the problem itself, which is "insufficient investment demand, across the world, to absorb all the savings available in the economy".
In other words, while low interest rates might appear to create a conflict between creditors and debtors, this is not true in the aggregate, and it is certainly not true over the medium-term. Overall, savers and borrowers in fact have the same interest: that the economy returns to potential without undue delay and grows sufficiently strongly to generate enough income for both. That, in final analysis, is the only way to truly protect the long-term interest of savers.
Thus the second part of the answer to raising rates of return is clear: continued expansionary policies until excess slack in the economy has been reduced and inflation dynamics are sustainably consistent again with price stability. There is simply no alternative to this today.
The only potential margin for manoeuvre is in the composition of the policy mix, that is, the balance of monetary and fiscal policy.
German politicians have been some of the most vocal opponents to the ECB's low interest rate strategy. Finance minister Wolfgang Schauble warned Draghi in late April that ultra-loose monetary policy "could end in disaster".
Draghi has insisted interest rates will remain "at present or lower levels for an extended period of time".