More than 4 years ago , in 2016, In February, for the first time in history, we encountered a negative Euribor . For those who are not aware, Euribor is the average interest rate for banks in the eurozone. This means that if the interest rate is negative, the subsidy is slightly lower than the initial amount. Is this profitable? Logically, we reply that we do not offer currency exchanges rather than loans. How did that question come about?
In this article we will discuss why Euribor is negative. How much of this irrational approach is needed in search of economic recovery, as opposed to the current one?
A little look at the past
Euribor reached 5’393% before the financial crisis ; That was in 2008 . Once this peak is reached, interest rates fall sharply. One year later, in 2009, Euribor was seen at 1.30%; But later it rose. However, in 2012, it fell for the first time by 1%. Four years later, in 2016, Euribor was negative for the first time. Many savers will remember those years. Profits from savings bank deposits did not offer the first profit margin of 0.1%.
The Lehman Brothers had to pay for the entire financial crisis after the crash. Central banks withdraw money and lend it to banks in their areas. I have to take out loans. We have to change money. Companies; Families also have to ask for money back.
The negative Euribor remains, and for what reason?
It lends money to banks marked by interest from the European Central Bank . As mentioned earlier, one of the purposes is debt and cash flow; That is, to encourage consumption. This softening comes with the goal of gradually increasing inflation. Although monetary policies have been in place for many years to raise inflation, they have not been fully successful and could prevent inflation from rising due to lower consumption of raw materials and falling commodity prices, such as oil and other international exports. On average, it can be said to be healthy, and a very high economy can hurt the economy. Similarly, deflation is bad for the economy.
As the economy slows, families are increasingly saving. Rising unemployment and difficulty accessing credit have exacerbated the crisis. But suppose you’s doing something cheaper because of the recession and the recession. This paradox has reduced the flow of money and encouraged borrowing by lowering interest rates on loans. For this reason, raising interest rates is almost impossible. It can prevent debt and affect consumption.
Advantages and disadvantages of negative Euribor
The idea of stimulating consumption based on monetary policy has two sides. Understanding the negative effects of Euribor will help you to better understand not only the eurozone economy but also your personal finances.
Its advantages are: On average, low interest rates include mortgages. If the mortgage changes according to the rate, When Euribor drops, it is usually more noticeable; Because it pays less, it saves money for your pockets. It is not uncommon for Euribor to fluctuate, though it is not uncommon to be concerned about unsecured loans and high interest rates. By gaining more storage capacity, families can have more resources to consume. It promotes wealth on the part of companies. In this way the whole cycle is closed and it benefits all of us (finances).
Its disadvantages are mainly low currency prices; It saves on the potential for cost savings . Other means of relocating and expanding the capital are dwindling. Negative Euribor is a solution for the short or medium term, but not for the long term.
Interestingly, many thrifters decide to invest their money; Some are in the stock market; Some are to create new businesses. This is an advantage; I do not know if there are any weaknesses. Usually, the results are not good. But it does teach them new ways of doing things.
Prospects for Euribor
Future predictions before an epidemic may always be accurate, but they are more accurate than the current environment. The current economic potential is similar to the economy. Euribor experienced historic setbacks as it suffered in March 2020 due to widespread incarceration. Then, in less than a month, it had made a significant comeback (still in negative territory). In the following months and to the present, it continues to decline but slows down finances.
For this year and at least next year, Euribor is expected to remain in negative territory. It is around 0.25% for 2020 and around -0% for 2021. However, the economic impact of the epidemic; All of this can change, depending on the political response and how the European Central Bank handles future situations that are different. In the end, the ECB has the ultimate authority and authority to decide whether to increase or decrease Euribor (finances rate).