The return of the liquidity trap

The liquidity trap, postulated by Keynes in the 1930s, is a situation in which, no matter how much money there is, activity doesn't take off. Neither consumption nor investment ever picks up. Liquidity isn't transformed into activity.

There are signs that this is happening in Spain and Europe. The Spanish household savings rate is above the pre-pandemic historical average. Families are saving money, not spending it.

At the same time, European banks are reporting record liquidity ratios. According to the European Banking Authority (EBA), the liquidity coverage ratio of eurozone banks is at an all-time high. Banks have more liquidity than they need. They have plenty of liquidity, and it's not moving.

However, GDP isn't growing as it should. Except for Spain, which, thanks to tourism, will save its fortunes (also not with dramatic growth), the rest of Europe is experiencing weak domestic demand.

Inflation and interest rates have moderated considerably, yet activity is still slowing. It's a classic mismatch between financial conditions and the economy's real response.

Because?

First, uncertainty. Many families—and businesses!—even though they have disposable income, prefer not to commit it. They fear further price increases, lack confidence in the evolution of their use, or are simply correcting the debt accumulated from previous periods.

Second, the lack of clearly profitable projects in the private sector. Companies have access to credit, but they won't borrow if they don't see clear investment opportunities. Trump and geopolitical conflicts have the business sector disoriented and waiting for the outlook to become clearer.

Third, fiscal policy is not supporting the situation. Although European funds have provided significant stimulus, the pace of implementation remains slow.

From there, I see two possible scenarios.

The first thing is that, if the geopolitical environment stabilizes, savings will translate into a rebound in consumption and investment. But this requires clear signs of economic and political certainty.

If it doesn't stabilize, we could end up in a mild form of stagnation: economies with abundant liquidity but persistent paralysis, in which money acts not as a driving force but as a refuge.

The problem will not be one of encouragement, but of confidence.