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.

Photo: Getty
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What is the New Hampshire primary, and why does it matter?

Although the contest has proved less influential in recent years, the New Hampshire primary is still a crucial event.

While the Iowa caucuses are the first electoral event in the US’s presidential process, the New Hampshire primary is the candidates' most important early test before the action explodes across the rest of the country.

The stakes are high. If the nominations aren’t decided soon, the campaigns will be damned to a marathon of costly state primaries and caucuses; New Hampshire is their first best chance to avoid that fate. But it didn’t always work this way.

Primaries only became the key element of the nomination process relatively recently. Until the postwar era, presidential candidates were chosen at the national conventions in the summer: in the run-up to the 1960 election, future president John F Kennedy famously entered only one primary (West Virginia’s) to prove that a Roman Catholic could win a Protestant state.

It was only after the turmoil of the 1968 nomination, widely perceived as an establishment fix, that the McGovern-Fraser Commission changed the Democratic party’s rules to end the power of the “smoke-filled room” over the nominating process, prompting many states to adopt meaningful primaries for both parties' nominations.

First in the nation

Unlike caucuses, which generally are used in smaller states that would rather not pay for full-scale ballots, primaries are secret-ballot elections that allow voters to choose who will be their preferred nominee. But not all primaries are the same.

The parties sometimes hold their votes on the same day, as they do in New Hampshire, or on different ones. A primary may be open (allowing any voter to register a preference) or closed (allowing only pre-registered party supporters to vote). New Hampshire has a mixed system which allows voters to register in a primary on the day before voting without declaring a party affiliation.

That means that while all voters registered with a party must vote in that party’s ballot, the New Hampshire result often hinges on these unaffiliated voters. Because they can vote in whichever ballot they like and can register so close to primary day, the state is notoriously difficult to poll.

New Hampshire has cemented its first-in-the-nation status by passing a law that requires its lawmakers to move the state’s primary to pre-empt any other state’s, no matter how early. That means it’s traditionally been not just an important indicator of how candidates are faring, but a way of winnowing the field and generating or killing funding. Candidates who perform poorly generally find their access to money suddenly dries up.

The arguments against New Hampshire’s outsize role are many. Like Iowa, it’s hardly representative of the US as a whole, being a small state with an overwhelmingly white population. And while (unlike Iowa) it has no powerful evangelical Christian element, it retains a very distinctive tradition of small-town New England politics that demand a particular kind of face-to-face, low-to-the-ground campaigning.

But this time around, other factors have cut into New Hampshire’s significance.

On the Republican side, the primary’s winnowing role was in large part pre-empted when the TV networks holding debates allowed only the higher-polling candidates on stage, effectively creating a two-tier system that tarred lower-polling candidates as also-rans long before voting began. Meanwhile, the financial calculations have been transformed by campaign finance reforms that allow for almost unlimited outside fundraising – allowing candidates to build up the reserves they need to withstand a humiliating defeat.

Nonetheless, a truly surprising New Hampshire result could still change everything.

Shuffling the deck

New Hampshire hasn’t always chosen the winner in either the nomination contests or the general election. But it has provided more than its share of political upsets and key turning points, from persuading Lyndon Johnson not to stand again in 1968 to resurrecting the candidacies of Hillary Clinton and John McCain in 2008.

The incremental campaigns for the nominations are all about the perception of momentum, and a notional front-runner can be dislodged or destabilised by a poor performance early on. That’s especially true in this year’s cycle, in which both major parties are grappling with huge surges of support for outsider, anti-establishment candidates.

Mainstream Republicans have spent months trying to end Donald Trump’s noisy domination of their crowded field. Trump was indeed defeated in Iowa, but not by a moderating force: instead, it was radical conservative Ted Cruz who overturned him.

Cruz is loathed by the party establishment, and he stands little chance of appealing to mainstream voters. Marco Rubio’s strong showing in Iowa briefly made him something of a standard-bearer for the party’s moderates, but a disastrous turn at the last debate before New Hampshire has thrown the future of his candidacy into doubt.

The primary will also reveal who, if any, of the more moderate Republican candidates – among them Jeb Bush, John Kasich and Chris Christie – will survive. While Bush has a massive funding advantage (albeit with precious little to show for it), Kasich and Christie both need a strong showing in New Hampshire to reinvigorate their financial reserves.

On the Democratic side, the key question is whether Bernie Sanders can make good on the surprising energy of his populist, grassroots challenge to Hillary Clinton. He is currently the heavy favourite in New Hampshire: even if Clinton somehow pulls off a miracle win there as she did in 2008, the closeness of the race is already stimulating both campaigns' national organisation and spending. And with what could be a long race between them heating up, the two’s growing mutual acrimony may yet start to undermine the Democrats' national appeal.

Gillian Peele Associate Professor in Politics and Tutorial Fellow at the University of Oxford.

This article was originally published on The Conversation. Read the original article.