Due to the recent measures to of stimulating European economy, The European Central Bank has proclaimed low interest rates and cheap loans. European Central Bank’s Lower interest rates are set to help encourage banks in lending money to business and company owners, at low rates, instead of holding onto money and earning zero interest.
It is true that the Federal Reserve under Ben Bernanke and Janet Yellen have engaged in unusual and emergency measures to stimulate the American economy. They are printing money in quantitative easing to help the stock market go up and some of that money is going into European markets. They are doing this with assistance of the ECB.
By these unconventional measures, stimulating euro zone economy, European Central Bank has become first major bank to use negative interest rates, by also lowering benchmark rates to 0.15 percents, which is almost double off original step percentage. Lower interest rates are rather uncommon and usually an indicator that economy market has lived to be in very bad shape. When bank is not in envious position, declining loans to independent businesses and small and medium companies often occurs.
Mario Dhagi has announced that European Central Bank’s Lower Interest rates could last in form of commercial bank rates for four more years. Negative rates work in a way that makes possible for banks to borrow more money from European Central Bank by giving more loans to business owners and small and medium companies. However, this solution can’t make up for inflation state on long tracks, so in the next four years more conventional measures should be considered.
Deflation is becoming more visible, as life standard in Europe is decreasing, but currency rate have fell to almost 1.4 US$, which makes it the lowest rate in five months. Deflation is still not a real-life problem to majority of citizens, but if the European Central Bank’s lower interest rates do not fix the economy shape, other serious problems might occur. Problems which might occur in the future, caused by deflation and bad economy state, are low consumption, increased unemployment rates and even investors’ retreat.
In order to avoid and fix Greece and Portugal scenario of increased unemployment and economical chaos, European Central Bank has to make every effort, but it also needs to be stressed out that not everything is in ECB hands. Commercial banks and government in European zone and affected areas and countries should also make every effort in fixing the bad economy state and step up in making smart decisions in order to recover the euro zone to its previous shape. For now, European Central Bank’s lower interest rates should be effective as temporary solution until more efficient measure appears.