This is a comment by Jörg Bibow, my former colleague at Franklin, on the latest Quarterly Report on the Euro Area produced by the European Commission and its economic nonsense.

The notion that “cutting the ECB deposit rate into negative territory — that is, charging banks to hold money at the ECB instead of paying them — could push them to lend” is a mistaken, yet popular view.

This is a Q&A on the subject:

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I recently argued that negative rates are just another tax on the private sector, and are no incentive for bank lending to households and firms. In my view, with interest rates below zero the economy will freeze up. Alan Blinder has argued exactly the opposite. For Blinder,

If the Fed turned the IOER [interest on excess reserves] negative, banks would hold fewer excess reserves, maybe a lot fewer. 

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The ECB, the Fed, and the National Bank of Switzerland do not rule out the possibility of lowering interest rates below zero.

However, a negative interest rate is just another tax.