ECB’s Mersch says it’s difficult to discuss negative interest rates as there’s no precedent

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  • on reuters
  • says the ECB have to be very careful about moving into unchartered territory

Anyone would think the boys have had a small conference call about yesterday’s revelation, or perhaps they’re caught long of euros !

 

Author: Mike Paterson

Mike Paterson has more than 30 years of experience trading FX including as a senior trader with UBS and Credit Suisse. He was also head of FX at the State Bank of Victoria. With sizeable daily trading volumes Mike carved out a name in the market combining professional integrity with a cynical grasp of seizing market opportunity. Since leaving the City, Mike has been working as an independent consultant and trading along with presenting seminars and writing for a number of publications. Mike lives in Kent and supports Southend United FC.

2 Comments

  1. I agree. At yesterdays press conference there were some exceptionally good questions and I think Draghi started to show his true colours. The question I would have like to seen being asked is whether the current high levels of unemployment across the Eurozone pose any threat to price stability and if currently not, what are the signals that would suggest the price stability is being threatened.

    Unless he starts to take action to reduce unemployment, he will become the biggest threat to the Euro. My hope that he would pull another rabbit out of the hat was badly misplaced.

    If the demonstrations seen on May Day continue across Europe, there is no prospect of the Union continuing. This can be reversed by alternative measures.

    In essence there has to be job creation. The best place for job creation is through the SMEs.

    Easing in the manor adopted by the FED probably would not work as the available investment would not be accessed by the SMEs. Negative interest rates on the other hand would compel the banks to lend to SMEs as parking the money with the ECB would attract negative growth.

    The other thing is that there is massive liquidity within the banks following the various initiatives. Sadly only a very little of that money has been put to work in the SMEs who are the powerhouse of job creation.

  2. But Chris, where is the line drawn between the ECB using their “powers” for the economy and member governments using theirs? The ECB mandate is price stability yet more and more people are looking to them to fix Europe because all faith has been lost in the individual states governments. The ECB can only do so much, can’t they?

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