IGTA Journal - Summer 2020

Nonetheless, the up-side of negative rates must be analyzed considering the down sides, which could be even more important and have a deeper impact on the whole economy. Today, the public borrowing has broken all peacetime highest levels. Of course, the accommodative QE policies and bond repurchases combined with negative rates will help and helped during the lockdown. However, the negative interests may have a huge impact on bank profitability, which is by the way already challenged by post-Covid provisions for bad debts. Conversely, according to specialists, it seems that debt restructuring has proven to be the most effective way to address unsustainability of debts. In a negative rate context, we have seen that individual investors tend to shun capital markets and bonds to avoid being penalized by costs of saving money. One results of this accumulation of liquidities is to keep assets in banknotes or on current accounts. By law, some countries impose saving accounts to deliver a minimum percentage (positive) of interest (e.g. France and Belgium). It illustrates some of the consequences of negative rates, maybe underestimated. It is true that conversely to a corporate or listed company, a State cannot be recapitalized. Recapitalization of countries and governmental organization would help. A company can borrow up to a certain limit, while a State, providing it keeps a decent minimum rating level, can keep borrowing further and further. One of the paradoxes of the negative rates lies in the obvious reduction of cost of debt, combined in general with an increase of total indebtedness level. It is a rat race and it will work as far as we have faith and remain convinced, they will reimburse (we all have a doubt but…) and at least pay the interests regularly. Being paid for borrowing is insane as it does not encourage to stop borrowing or to repay faster (as it should be). Covid is the best pretext to justify a State debt huge increase. Nevertheless, these incredible levels were already there even before the last crisis. I keep thinking the negative zone in interest rates has a perverse effect and is not as interesting as some people think in the long run. The future will tell us whether it was the right approach. But some countries have doubt and have decided not to fall into this potential trap. The economic history will tell us in couple of decades… IGTA eJournal | Summer 2020 | 33