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European Central Bank Move to Negative Interest – Better Late Than Never

Released: 5-Jun-2014 12:00 PM EDT
Source Newsroom: Cornell University
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Steven C. Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell’s Dyson School of Applied Economics and Management, says, “better late than never” to the European Central Bank’s radical decision to impose a minus 0.1 percent interest rate on deposits.

Kyle says:

“The European Central Bank seems to have finally woken up and realized that ever-lower price levels can be dangerous. With negative inflation rapidly becoming a real possibility, the ECB has taken the seemingly radical step of actually paying banks to hold money.

“This is a long overdue step and signals that the ECB may finally be taking seriously the dangerous consequences of deflation ¬– negative inflation. Among these are increasing real value of debt, making it harder for both governments and the private sector to pay off money they owe, as well as making it well-nigh impossible for wages to adjust downward sufficiently for employment to register gains in those countries ¬– such as Spain – where it continues to register Great Depression levels of unemployment.

“Is this move soon enough and big enough? Only time will tell. But it certainly shows a clear break with past attitudes and should be applauded.”

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