For Europe, the outlook is bleaker. The ECB cut its key rate to 0.75%, moving below 1% for the first time in its history, and lowered its deposit rate to zero. The hope might be that banks that have stashed €790.9 billion ($989 billion) with the ECB would now deploy it elsewhere. But ECB President Mario Draghi noted it couldn't affect banks' lack of risk appetite, ameliorate their lack of capital or boost demand for credit.
The ECB's move also triggered a cut in Denmark, since the krone is pegged to the euro, and that took Danish deposit rates to an unprecedented minus 0.2%. In the long term, negative interest rates may lead to problems with the functioning of the banking system, as it is more attractive to hold cash physically rather than leave it in the bank.
Thursday, July 05, 2012
They Might Need To Rethink That Whole Peg-to-the-Euro Thing In Denmark
Well, you have to give them credit over there on the Continent. They keep finding new ways to start bank runs.