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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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com