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One of the main means for a central bank to promote financial stability is to set the interest rate at which it lends to banks. The lower the rate, the bigger the incentive for banks to do loans to finance companies and consumers' projects. The relationship is straightforward as long as the interest rate stays positive. Indeed, if the interest rate turns negative, negative side effects start to come up, and the point of this article is to highlight those side effects. A Euro dipping in the Aegean sea, in front of Mount Olympus (picture from the author) 1. Which rates does a central bank set? A typical central bank actually sets 3 different rates: - Deposit facility rate (or fed funds rate in the USA) = defines the interest banks receive for depositing money with the central bank overnight. It is compulsory for banks to depose part of their capital at the central bank and this amount is called reserve. - Main refinancing rate (or discount rate in the USA) = defines th...

How well is Europe's economy doing? Following the European sovereign debt crisis and the Brexit (British exit from the European Union), are we about to witness a deepening European crisis fueled by structural issues? Or is it the case, as I heard several European institutional investors say, that European equities are the most promising assets to invest in because Europe is on the track to recovery and its market is undervalued compared to other regions in the World? For example, Igor de Mack, fund manager and spokesperson at DNCA Investments, said in a recent comment that "low valuations [of European equities] are increasingly compelling" Youngster carrying the European flag at the World Youth Days in Krakow, Polonia First let's look at the latest economic figures for the Eurozone. 1. A double-dip recession GDP growth shows the Eurozone suffered a double-dip recession, the first part being in 2008-2009, triggered by the global financial crisis, and the ...

Seven years after the beginning of the Greek debt crisis, which started with newly elected Prime Minister George Papandreou discovering that Greek government budget numbers had been manipulated for years, is Greece out of the woods yet? Let's have a look at the latest economic data to see what has been the results of three bailout packages (2010, 2012 and 2015) and seemingly endless political drama. Did Greece choose the optimal path by opting to stay in the Eurozone or would it have been better off exiting the Eurozone in 2010? 1. The depression Between 2008 (when the global financial crisis propagated to Europe) and 2014, Greek GDP has collapsed by one third. This is huge, and even though it is not as bad as the Great Depression (between 1929 and 1933, US GDP dropped by 45%), it ranks as one of the worst depressions of any developed economy. In fact, ratings agency S&P has even downgraded in 2014 Greece from developed economy to emerging market status, which is the first...