The European Central Bank (ECB) has used up its ideas and its armoury; now the eurozone (EZ) is reduced to negative interest rates and bail-outs that benefit the big banks of donor countries and the foreign ambitions of large corporations.
The world is experiencing historically low interest rates but the problems of the eurozone (EZ) are particularly acute, so having run out of most financial firepower the ECB has resorted to negative interest rates. You now have to pay to lend your money to a bank. The idea is to encourage lending to firms that would need to invest it rather than pay to save the cash, thereby helping the economy to grow out of danger.
As we’ve seen with other ECB initiatives, good intentions don’t always work as intended. Bailouts to eurozone countries following the financial crash saw the money flooding back to save the donor countries’ own banks after they had lent unwisely in Greek, Italian and other troubled economies. Its TARGET2 bank settlement scheme was meant to balance the books between EZ members but has resulted in debts too big to be repaid, ever [1].
The consequence of negative interest can also be bizarre as London investment advisor, Southbank Research, has noted. French fashion company, LVMH (Louis Vuitton Moët Hennessy), has bought world-famous American luxury jewellers, Tiffany, for $16.6 billion, of which more than $10 billion was with borrowed money—corporate bonds. The ECB’s Corporate Sector Purchasing Programme, which now has a €189 billion portfolio of loans to European companies, will have participated in this splurge using freshly-minted money from the QE programme, designed to save the deeply flawed euro currency and thereby the eurozone economies (and probably the entire EU project). Individual countries in the EZ cannot print their own dosh to stay afloat—not legally, though the Italians have threatened to do it [2] – so the ECB has to do it for them to glue the zone together. It first introduced negative interest rates in 2014; it hurts savers, pensioners and even banks themselves, like once-mighty Deutsche Bank. How long can the glue stick?
State aid to UK companies tilts the playing field, as we are constantly reminded by French referee Michel Barnier. Of course he can’t watch everything but perhaps his linesmen or the TMO (Television Match Official) could help—except he wants to appoint the ECJ rather than neutrals.
So everybody with savings in euros has given France’s richest man, Bernard Arnault (CEO of LVMH) money to buy the jewel of American fashion. Southbank’s author, Boaz Shoshan, satirically suggests the Bank of England needs to get into this game to help BAE Systems buy Lockheed Martin and for BP to buy Saudi Aramco. More seriously, the ECB’s generosity has resulted, in this case, in buying up foreign assets rather than investing in native ones; a rich man can move his money to other shores—sorry, whose money?
Meanwhile some of the crown jewels of the City of London’s financial industry are moving to Paris and Frankfurt as a result of Brexit. But more than 1,400 EU-based firms have applied to operate in the UK with over a thousand planning to open a UK office for the first time [3]. This is the kind of detail you don’t find on FullFact.org which describes itself as “the UK’s independent fact-checking organisation” [4]. London will remain a global financial centre and may have a greater chance to maintain its status without being forced to follow damaging EU regulations that hand the advantage to New York, Singapore, etc.
[2] To BOT, Or Not?
In one article FullFact’s researcher states that since some fish (like mackerel) are migratory they could have been born in Belgian waters, swum though British ones before heading off towards Iceland and are therefore European; so the sea might be ours but anyone can take what’s rightfully their own! The researchers are academics, they may use decent sources for their facts but they also have opinions (like the BBC’s Reality Check researchers).
This EU Won't Work 