Spend it. Quick. Get rid of it today. Think not of tomorrow.

This is not the mantra of the financially irresponsible. It is the incentive that monetary and financial institutions across the eurozone, starting from the Board of Governors of the European Central Bank down to the tiniest bank branch in one of Malta’s villages, are giving each and every one of us who use the euro in their everyday economic lives.

After the European Central Bank cut its interest rates in June this year to also introduce a rate below 0 per cent, banks in Malta followed suit and are now offering practically nothing on savings accounts. Not really an alluring prospect compared to the joys of using money to enjoy purchases here and now.

From a longer term investment perspective, this state of affairs could well entice financial savings to be placed into real estate, with house prices being subdued as they currently are. Reasonably so, as banks appear not to be in much need of depositors’ money...

Apart from offering no free lunches, economics has a knack of being unfair

What is the macro picture behind this state of affairs? The financial and economic debacle of 2008-2009 led the European Central Bank to lend unlimited amounts of money to banks to prevent a domino effect of bankruptcies across the financial system. Thankfully, this was successful, but the result was a ballooning in the supply of euro, including monies just lying idle at banks.

In this abundance, the value of the euro – as reflected in the rate of interest payable to obtain it – fell drastically. Banks survived, but found themselves in a situation where the staple commodity in which they were trading lost much of its value… the proverbial absence of a free lunch in economics.

As with most good things, the return on financial savings moves in line with economic growth. When the going is good, business is able and willing to pay good returns to obtain funds for investment, which then trickle across all interest rates in the economy. Central bankers also have a say in this, as they try to restrain economic exuberance by limiting their credit to banks, in their attempts to limit increases in prices.

But apart from offering no free lunches, economics also has a knack of being unfair. In time of economic hardship, it is often the case that a profligate attitude by Central Banks towards the money supply fails to kick-start the economy. After all, money is just inherently worthless pieces of paper… Passing more of it around is no guarantee of the restoration of economic confidence and of an expansion in consumer demand.

And, lest I forget, there are still some basic economic textbooks which propagate the myth that when the central bank reduces interest rates, business will invest more. True, perhaps, in an idealised world where the only hindrance to investment is the cost of finance. In a real world, where business investment depends mostly on human resources, the availability (as opposed to cost) of capital, operating costs, research and development, and market access and demand, lower interest rates can hardly be expected to spur business investment.

Which is why interest rates in the eurozone are so low, yet growth in most economies is barely a flicker, save of course for those which are competitively strong and are able to control their fiscal spending (which, in short, constitute a credible proposition with which to do business in the long run).

Some thoughts about Malta. Economic growth is relatively strong, at 2.6 per cent in 2013 compared to practically nil average in the eurozone. Inflation, curbed at 0.9 per cent by the extraordinary decrease in electricity and water prices, is no different from that of the eurozone.

Yet, growth in bank credit has stalled in 2013. A portent of impending doom? Not likely, as at the same time, investment in fixed assets continued to increase, while growth is being generated by service-oriented sectors which are themselves cash generators and have little need for bank credit.

Does our economy need even lower interest rates?

Say we take another half percentage point cut to interest rates across the board. Incomes earned by depositors, be they household or business, would fall by €50 million in a year, affecting all levels of society and the economy. This would almost nullify the positive effect on spending power generated by the reduction in electricity and water tariffs. It would act as a drag to consumer spending power, which would not benefit business.

Let us next argue that the same €50 million would be saved in terms of operational costs to business…indeed a boon to debt-laden sectors such as construction and wholesale and retail.

All taken together, I would look forward to a banking sector which is more proactive in its financing of innovative and perhaps riskier activity, not so much in cutting costs to sectors in transition at the expense of curtailing purchasing power across the economy.

But then, don’t interest rates in Malta need to follow those set at the European Central Bank? Arguably so, but that is another story…