Switzerland and Denmark go negative

Negative nominal interest rates arrive.

Government interest rates have, in real terms, been negative for quite some time. Britain, the US, and Germany are all in the position where they are being paid to borrow money. This creates some rather interesting incentives for governments: they can fund massive investment programs at minuscule expense, they can use money which would be spent on interest payments on more valuable projects, or they could even just stop collecting taxes entirely.

Unfortunately, political considerations have meant that most governments have been unwilling to show even the slightest innovation when responding to a situation in which the most basic rules of the game no longer hold. And, when negative interest rates came to business, the same thing happened.

Unilever and Texas Instruments are also borrowing below the rate of inflation, but when presented with free money, businesses – even ones like Google, supposedly staffed with the world's greatest blue-sky thinkers – don't do anything other than sit on monstrous cash piles waiting for a more favourable investment environment.

Now the trend has spread in a different direction. Two banks – State Street Corp. and Bank of New York Mellon – have announced that customers holding accounts in Swiss Francs or Danish Crone will be subject to a negative interest rate. That's negative in nominal terms, so in real terms it's an even sharper penalisation of savers.

These two currencies are experiencing some of the tightest squeezes because they are both pegged closely to the euro (Denmark is in ERM II and Switzerland has enacted a ceiling on how much it can appreciate relative to the currency), while also being in strong demand because they are not actually the euro – making them the star choice for investors who want to hold european assets without taking the risk that the eurozone will messily implode.

Conventional wisdom says that nominal negative interest rates can't happen. Savers will merely withdraw their money and keep it in cash to avoid the "fee". This doesn't seem to be happening, probably because the value of having a bank account in another countries currency is high enough that it's worth paying for the benefit. Conventional wisdom, yet again, is apparently wrong.

The Matterhorn, Swiss icon. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Italian PM Matteo Renzi resigns after referendum No vote

Europe's right-wing populists cheered the result. 

Italy's centrist Prime Minister Matteo Renzi was forced to resign late on Sunday after he lost a referendum on constitutional change.

With most ballots counted, 60 per cent of Italians voted No to change, according to the BBC. The turn out was nearly 70 per cent. 

Voters were asked whether they backed a reform to Italy's complex political system, but right-wing populists have interpreted the referendum as a wider poll on the direction of the country.

Before the result, former Ukip leader Nigel Farage tweeted: "Hope the exit polls in Italy are right. This vote looks to me to be more about the Euro than constitutional change."

The leader of France's far-right Front National, Marine Le Pen, tweeted "bravo" to her Eurosceptic "friend" Matteo Salvini, a politician who campaigned for the No vote. She described the referendum result as a "thirst for liberty". 

In his resignation speech, Renzi told reporters he took responsibility for the outcome and added "good luck to us all". 

Since gaining office in 2014, Renzi has been a reformist politician. He introduced same-sex civil unions, made employment laws more flexible and abolished small taxes, and was known by some as "Europe's last Blairite".

However, his proposed constitutional reforms divided opinion even among liberals, because of the way they removed certain checks and balances and handed increased power to the government.

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.