Low and negative interest rates have been a burden for account holders across Europe for some time. And it’s only getting worse, as the European Central Bank just announced a new rate cut to a record low of -0.5%. Private and corporate customers in many countries on the continent don’t have a lot of options to preserve the value of their holdings, at least not in the fiat money world. However, cryptocurrencies which have seen a revival this year offer a real alternative – one that can bring income instead of losses.
Also read: Big Banks Won’t Touch Crypto Clients – But These Smaller Banks Will
Interest Rates Freezing Deeper
The European economy never fully recovered from the 2008 global meltdown. What started as a subprime mortgage crisis in the U.S. the previous year, eventually grew into a large-scale international banking crisis followed by a worldwide economic downturn. On the Old Continent, it sparked a debt crisis which hurt countries using the common currency, the euro. Governments and central banks embarked on massive bailouts of financial institutions and other policies — such as a never-ending cutting of interest rates — to prevent a collapse of the traditional financial system.
These monetary and fiscal measures did not help countries such as Italy, Spain and Greece to get out of the debt swamp. The Italian economy, the eighth-largest by nominal GDP, slowly caught up with the generally weak Eurozone growth indicators, but it continues to suffocate from its huge public debt accumulated through excessive government spending for decades. At least a third of Italians live in poverty or risk of social exclusion. Italy’s projected growth for 2019 is only 0.1%, according to the IMF, and the national institute of statistics, Istat, found the economy stagnating in the second quarter.
Economic growth has been slowing down across the rest of the Eurozone, largely due to the looming trade wars and the Brexit saga which hurt international commerce and economic prospects. Eurostat revealed that gross domestic product of the group’s 19 countries grew just 0.2% during the same three-month period, compared to Q1 of 2019 when the bloc’s economy expanded by 0.4%. The annual growth registered in the second quarter was 1.1%. Between April and June, the German economy, the largest in the monetary union and the EU, shrank by 0.1% quarter-on-quarter and slowed to 0.4% year-on-year.
ECB Announces More Quantitative Easing
On this backdrop, the European Central Bank (ECB) made good on its plans to implement new measures to stimulate Europe’s sluggish economy. Actually, these measures are nothing new, per se: a deeper deposit rate cut, by 10 basis points to an all-time low of -0.5%, and a fresh open-ended round of quantitative easing. In November, the bank will start purchasing 20 billion euros’ worth of bonds each month. That’s a commitment which will continue indefinitely, or at least until ECB decides to raise interest rates. The “new” in these moves obviously applies to the fact that the benchmark interest rate hasn’t been lowered in the past three years, and QE hasn’t been implemented since last December.
This decision came from an ECB conference in Frankfurt last week. Later, Eurozone’s central bank clarified that the interest rate, at which European banks deposit funds, will remain at the newly introduced level until inflation reaches the 2% target. The institution also said it’s planning to exclude some European banks from the subzero rates. Negative interest rates have already caused adverse reactions in European countries. A political initiative in Germany, for instance, aims to legally prohibit banks from imposing punitive interest on savings of up to 100,000 euros.
The new record low rate is being introduced as Mario Draghi is preparing to step down as the head of ECB. Draghi, who will soon vacate the post, has never raised the interest rate during his eight-year term. He will be replaced by Christine Lagarde, the Managing Director of the International Monetary Fund who will assume the new office on November 1 this year. Some predict a rough start to her term as analysts believe 2020 will be the year when the next big financial crisis may hit.
Cryptocurrencies Are a Safer Bet for Europeans
In the current situation, where residents of many countries in the Eurozone and its periphery are forced to accept the burden of negative interest rates, decentralized digital currencies are becoming a viable alternative for savers, spenders, and investors. That’ll be even more so if predictions of a new major crash in the fiat system come true. This year’s rebound of crypto markets is a proof of that, and the number of crypto proponents in the region is likely to grow.
Banking is important for both businesses and private individuals. And while cryptocurrencies were invented in part to avoid third parties in financial relations, demand for banking services…