Shave and a European Haircut

Just a couple of days ago, Longtime Sharp VodkaPundit Reader™ “Formerly Neil” commented:

Europe faces a massive, deflationary debt implosion within the next few years–you can read the white papers going around now planning for a 10% haircut on all bank deposits and a 15% haircut to creditors. It’s going to be Cyprus writ large.


And here’s a report today from the Wall Street Journal:

The European Central Bank unexpectedly lowered all its interest rates Thursday and announced two new programs for buying asset-backed securities and covered bonds issued by eurozone banks.

The euro fell more than 1% against the dollar to a 14-month low after the ECB announced the rate cut. Equity markets rose, with the Stoxx Europe 600 gaining 0.87% and the U.K.’s FTSE up 0.2%, closing in on its highest level in its 30-year history.

The ECB’s main lending rate was lowered to 0.05% from 0.15%. The ECB also lowered the rate on overnight bank funds parked at the central bank to -0.2% from -0.1%. The ECB in June became the largest central bank to experiment with a negative rate on bank deposits, a measure aimed at encouraging banks to lend surplus funds to other financial institutions rather than paying to park them at the ECB. It also cut the rate it charges on overnight loans to 0.30% from 0.40%.

They’re testing the waters it seems.


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