Welcome to a world where interest rates hardly exist at all

Near-zero interest rates undermine the very notion of a ‘debt overhang’ in the likes of Ireland, writes Daniel Gros.

THE developed world seems to be moving towards a long-term zero-interest-rate environment. Though the US, Japan, and the eurozone have kept central bank policy rates at zero for several years already, the perception that this was a temporary aberration meant that medium to long-term rates remained substantial. But this may be changing, especially in the eurozone.

Strictly speaking, zero rates are observed only for nominal, medium-term debt that is perceived to be riskless. However, throughout the eurozone, rates are close to zero — and negative for a substantial share of government debt — and are expected to remain low for quite some time.