The Case for Keeping Europe’s Negative Rates Where They Are
As the gap between the haves and have-nots has grown, the European Central Bank’s policy has been a great equalizer.
ECB President Christine Lagarde and European Commission president Ursula von der Leyen talk in Brussels.
Source: Bloomberg
The European Central Bank’s negative interest rates remain divisive. But there’s a stronger case to be made for allowing euro zone borrowing costs to fall lower, especially at this stage of the pandemic, than there is for backing away from them now.
Negative rates have long been seen as a tax on the aging savers and lenders of Europe’s creditor nations of Germany, Austria and the Netherlands. The main concern is reaching the so-called “lower effective bound” — the rate at which the transfer of negative rates onto bank clients triggers a depositors’ “run” on banks, erodes banks’ profitability and capacity to lend, and undermines the effectiveness of ECB stimulus.