Every so often, the economic and business news cycle seems to focus its attention on Europe. In the heart of the global recession, you could hardly go anywhere without hearing about the problems in Greece. The broader problem, coined the “European Debt Crisis,” claimed the headlines for awhile. Lately, however it seems the major news outlets have found more shocking headlines.
That changed just recently –
Last week, the European Central Bank held a scheduled press conference to discuss their latest monetary policy. Monetary policy, among other things, involves the setting of interest rates that influence how banks borrow and lend. While these press conferences are a normal occurrence, this particular ECB meeting produced a decision the world has not yet seen. They decided to lower interest rates in an effort to stave off deflation. The rate is not just lower – it”s actually negative. The deposit rate is now -0.10%. This is the first time in history a major economic body has lowered a deposit rate into negative territory. The purpose of a negative rate is to discourage large banks from saving their money at the ECB deposit facility and to make lending and spending more attractive. The logic is that if borrowing is easier for banks, they will in turn lend that money out, which introduces more money into the European and world economies.
Here are two resources from the ECB about the negative interest rate and how it may affect you.
- “Why has the ECB introduced a negative interest rate?”- article on ECB website
- “What does the ECB decision mean for me?” – video of Mario Draghi, ECB President
But what was the big problem with Greece, Spain and the other “PIIGS” nations?
To answer this, we’d like to point you to an informative video produced by Bloomberg. Below is a video about the “European Debt Crisis” and why it’s a problem for the European economies and beyond. The vast majority of you don’t live in Europe. Why should you care? Take some time to view this well-produced video. Then call your Broker to ask specifically how the situation in Europe may affect your trading.
If you trade a CTA or invest in Managed Futures, do you know how your advisor will adjust its trading as developments in Europe continue? We encourage you to give us a call.
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