Mortgage, Savings & Investment

Negative Interest Rates Next Step In Europe?

Just when you think it can’t get any more absurd in the Euro zone, there seems to be a trial balloon being released suggesting that rates fall below zero. Now, you may be in one of those camps who scoffs at a deflation problem, but it is hard to argue that at least some in the ECB (European Central Bank) most definitely worry about it. Deflation may be synonymous with collapse in their minds, however. And to be fair, many economists do tend to use the words nearly interchangeably. Whatever the bankers true feelings, they appear to be ready to pull the trigger:

ECB policy makers would reduce the rate for commercial lenders who park excess cash at the bank to minus 0.1 percent from zero, said people familiar with knowledge of the debate who asked not to be identified because the talks aren’t public.

When zero is not doing the trick, either the trick ain’t working and/or there is some deep concern occurring. A negative lending policy is never in anyone’s goals regarding a healthy economy and it sure does have a whiff of desperation attached:

The negative ECB deposit rate is “one of last quivers they can draw from for weapons to combat sluggish economic growth,” Michael Mullaney, who oversees more than $10 billion as Boston-based chief investment officer for Fiduciary Trust Co., said in a telephone interview. “It is an admission that there’s definitely sluggish economic growth going on in the euro zone.”

Yes, well, It may be more than an “admission that there’s definitely sluggish economic growth going on.” There’s been slow growth (and I’m using the word growth loosely) in Europe for a long time now and even the block heads at ECB know it. What may be happening here is the beginnings of all out panic. There is no way that markets will take this news as a positive. And the fact that they are having it leaked ahead of time certainly implies that they are well aware of that. Of course it is possible that the story is nonsense, but it sure does have the ring of truth to it doesn’t it? It’s not like these Euro bankers have covered themselves in glory these past…well, ever.

Naturally, the sky-is-falling crowd will be all over this and who can blame them. Another little nugget for the Bitcoin crowd to munch on. It does serve as a useful reminder that despite Europe’s penchant for continually claiming everything is under control, they tend to always crop back up in the news. Quietly Europe is still a mess and all of those country bailouts have gone for naught. Regardless of whether or not the ECB moves from zero to -.10, the Euro zone has serious problems and the end is nowhere in sight.


Draghi denies negative rates coming…sort of. Do you believe him?

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