Deutsche Skatbank, a division of VR-Bank Altenburger Land, which was founded in 1859, is not the biggest bank in Germany, but it’s the first bank to confirm what German savers have been dreading for a while: the wrath of Draghi.
Retail and business customers with over €500,000 on deposit as of November 1 will earn a “negative interest rate” of 0.25%. In less euphemistic terms, they have to pay0.25% per annum to the bank for the privilege of handing the bank their hard-earned money or their business cash.
Inflation has had a similar effect in the zero-interest-rate environment that the ECB and other central banks have inflicted on savers, but this time it’s official, it’s open, it can’t be hidden. Instead of lending your moolah to the bank so that the bank can lend it out to businesses and retail customers for all sorts of economically beneficial purposes, you’re financially better off hiding it in the basement. Grudging respect is due the ECB and other central banks: through the perverse regime of ZIRP, they have succeeded in transmogrifying “cash in bank” from an income-producing asset to a costly liability.
“Punishment Interest” is what Germans lovingly call this. It’s the latest and most blatant step of the central-bank strategy to confiscate in bits and pieces and over time the wealth that prudent people and businesses have accumulated, and that should have re-entered the economy via the intermediation of the banks.
Last summer, the ECB imposed negative deposit rates on member banks. At first, it was 0.1%, which has now doubled to 0.2%. The reason? The ECB dragged out its “mandate,” which is, as it said, “to ensure” that “price stability” is “below but close to 2% inflation,” which in turn is “a necessary condition for sustainable growth in the euro area.” Whatever. There is not a scintilla of evidence that inflation is required for economic growth; however, there is plenty of evidence that economic growth can stir up inflation. The good folks at the ECB know this. It’s just the official pretext for using inflation to eat up debt – along with savers.
“There will be no direct impact on your savings,” the ECB announced five months ago. “Only banks that deposit money in certain accounts at the ECB have to pay.” But it added ominously, “Commercial banks may of course choose to lower interest rates for savers.”
And that would be good for savers:
The ECB’s interest rate decisions will in fact benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.
Thank you hallelujah, ECB, for helping out the savers!