Here's what Draghi meant when he said the ECB would "cope"

Even the ECB is getting creative now.

At today’s  European Central Bank post-meeting news conference, we discovered that ECB President Draghi and his fellow Governing Council members are pulling on their walking boots for a trip into unexplored territory namely, negative interest rates.

We all dozed through his opening, oft-repeated remark that the ECB, "stands ready to act", (if economic developments so-demand), but then, much more significantly, he repeated the phrase in response to a journalist’s question about whether the ECB would ever consider taking the Deposit Rate negative-that counts as a hint in my book, the markets seemed to agree, and everyone sat up in their seats to listen with rapt attention as he pushed home the hint by saying the ECB would "cope" with any unintended consequences of negative interest rates. That removed the last obstacle-hitherto, the ECB’s response to negative rate speculation has always been to refer to such fears. He also repeatedly emphasised the extent to which the Governing Council feels the transmission mechanism from low ECB policy rates to increased and cheaper lending to real people and businesses had healed itself, even in the Periphery, i.e. therefore, conventional policy tools are once again back in play and potentially efficacious.

I was also impressed by the way he didn’t repeat his usual mantra about not pre-committing to interest rate moves-he usually leaps down anybody’s throat if they’re silly enough to try and get him to do that!

Here’s what he meant when he said the ECB would "cope" with any nasty side effects of negative policy rates. The most frequently sighted potential undesirable consequence is an inability on the part of banks to fund themselves adequately, because Money Market Funds will be unwilling or statutorily unable to lend to banks at negative interest rates, for fear of "breaking the buck" in terms of their redemption prices to investors. So, the story goes, banks will become illiquid. Again.

However, the ECB has already proved to us all that liquidity is its party piece-witness its  Long Term Refinancing Operations and Outright Monetary Transactions, (well, witness the latter’s description at least, since it’s yet to be used in practice). Liquidity is what the ECB feels it’s there for, and what its mandate allows, as opposed to anything that smacks of the provision of deficit funding to governments.

This is what Draghi meant when he said the ECB would "cope". Even as he spoke, the ECB’s boffins were no doubt crafting some new, diabolically clever liquidity scheme.

The psychological effects of actually paying money every day to deposit money at the ECB would have quite a dramatic effect upon banks-more than that to be expected from a cut of only 0.25 per cent, and not only would this small move down in interest rates have an amplified effect upon banks’ willingness to lend, it will also lead the man in the street to think again before putting his money on deposit. Why not go and spend it-surely all these weird experiments  monetary policy must lead to inflation at some stage, so maybe better to buy that car now, before it costs more next year?

And if it works for the ECB, why not for the Bank of England and its incoming and undoubtedly imaginative new Guv’, Mark Carney? His defeated  Deputy, Paul Tucker, has already floated the concept.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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The 8 bits of good news about integration buried in the Casey Review

It's not all Trojan Horses.

The government-commissioned Casey Review on integration tackles serious subjects, from honour crimes to discrimination and hate crime.

It outlines how deprivation, discrimination, segregated schools and unenlightened traditions can drag certain British-Pakistani and Bangladeshi communities into isolation. 

It shines a light on nepotistic local politics, which only entrench religious and gender segregation. It also charts the hurdles faced by ethnic minorities from school, to university and the workplace. There is no doubt it makes uncomfortable reading. 

But at a time when the negative consequences of immigration are dominating headlines, it’s easy to miss some of the more optimistic trends the Casey Report uncovered:

1. You can always have more friends

For all the talk of segregation, 82 per cent of us socialise at least once a month with people from a different ethnic and religious background, according to the Citizenship Survey 2010-11.

More than half of first generation migrants had friends of a different ethnicity. As for their children, nearly three quarters were friends with people from other ethnic backgrounds. Younger people with higher levels of education and better wages are most likely to have close inter-ethnic friendships. 

Brits from Black African and Mixed ethnic backgrounds are the most sociable it seems, as they are most likely to have friends from outside their neighbourhood. White British and Irish ethnic groups, on the other hand, are least likely to have ethnically-mixed social networks. 

Moving away from home seemed to be a key factor in diversifying your friendship group –18 to 34s were the most ethnically integrated age group. 

2. Integrated schools help

The Casey Review tells the story of how schools can distort a community’s view of the world, such as the mostly Asian high school where pupils thought 90 per cent of Brits were Asian (the actual figure is 7 per cent), and the Trojan Horse affair, where hardline Muslims were accused of dominating the curriculum of a state school (the exact facts have never come to light). 

But on the other hand, schools that are integrated, can change a whole community’s perspective. A study in Oldham found that when two schools were merged to create a more balanced pupil population between White Brits and British Asians, the level of anxiety both groups felt diminished. 

3. And kids are doing better at school

The Casey Report notes: “In recent years there has been a general improvement in educational attainment in schools, with a narrowing in the gap between White pupils and pupils from Pakistani, Bangladeshi and African/Caribbean/Black ethnic backgrounds.”

A number of ethnic minority groups, including pupils of Chinese, Indian, Irish and Bangladeshi ethnicity, outperformed White British pupils (but not White Gypsy and Roma pupils, who had the lowest attainment levels of all). 

4. Most people feel part of a community

Despite the talk of a divided society, in 2015-16, 89 per cent of people thought their community was cohesive, according to the Community Life Survey, and agreed their local area is a place where people from different backgrounds get on well together. This feeling of cohesiveness is actually higher than in 2003, at the height of New Labour multiculturalism, when the figure stood at 80 per cent. 

5. Muslims are sticklers for the law

Much of the Casey Report dealt with the divisions between British Muslims and other communities, on matters of culture, religious extremism and equality. It also looked at the Islamophobia and discrimination Muslims face in the UK. 

However, while the cultural and ideological clashes may be real, a ComRes/BBC poll in 2015 found that 95 per cent of British Muslims felt loyal to Britain and 93 per cent believed Muslims in Britain should always obey British laws. 

6. Employment prospects are improving

The Casey Review rightly notes the discrimination faced by jobseekers, such as study which found CVs with white-sounding names had a better rate of reply. Brits from Black, Pakistani or Bangladeshi backgrounds are more likely to be unemployed than Whites. 

However, the employment gap between ethnic minorities and White Brits has narrowed over the last decade, from 15.6 per cent in 2004 to 12.8 per cent in 2015. 

In October 2015, public and private sector employers responsible for employing 1.8m people signed a pledge to operate recruitment on a “name blind” basis. 

7. Pretty much everyone understand this

According to the 2011 census, 91.6 per cent of adults in England and Wales had English as their main language. And 98.2 per cent of them could speak English. 

Since 2008-2009, most non-European migrants coming to the UK have to meet English requirements as part of the immigration process. 

8. Oh, and there’s a British Muslim Mayor ready to tackle integration head on

The Casey Review criticised British Asian community leaders in northern towns for preventing proper discussion of equality and in some cases preventing women from launching rival bids for a council seat.

But it also quoted Sadiq Khan, the Mayor of London, and a British Muslim. Khan criticised religious families that force children to adopt a certain lifestyle, and he concluded:

"There is no other city in the world where I would want to raise my daughters than London.

"They have rights, they have protection, the right to wear what they like, think what they like, to meet who they like, to study what they like, more than they would in any other country.”

 

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.