The European Union is the sick man of Europe. Several EU countries are hanging by the proverbial economic thread. Greece, Spain, Portugal, and Italy are all experiencing depression level unemployment. Last year, Cyprus depositors woke up one morning to discover that a substantial sum of their savings had been confiscated in exchange for a bail-out package insisted upon by “healthier” members of the Union–such as Germany.
On Thursday, the European Central Bank announced the imposition of negative interest rates on deposits. This move is meant to spur economic growth and combat low inflation. The theory is that negative interest rates will discourage banks from parking their money with the ECB and instead stimulate these banks to engage in lending. Thus, encouraging economic growth thru a cash infusion into the marketplace. However, these measures are absolutely unprecedented and reveal the depth to which the ECB is worried about the economic health of the EU. Certainly, the ECB is undertaking this radical policy because the EU’s fiscal health is critical. The questions that are not being asked, but should be are: “Will the EU survive this crisis intact with all the current members?” “Or will the EU cease to exist?”
It remains to be seen whether “the sick man of Europe” is terminal. If the man is terminal then the measures taken by the ECB should be described as hospice care. Purely, an attempt to make the sick man as comfortable as possible before his final demise.
Mario Draghi, President of ECB