Finance

Negative Rates Are About the Only Tool Central Banks Have Left

There’s a limit to what monetary officials can do when governments won’t spend money to stimulate the economy.

FIN_CENTRALBANKS_04_CMS — Illustration: Daphné Geisler for Bloomberg Businessweek

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By Simon Kennedy and Craig Stirling

July 26, 2019 at 12:01 AM EDT

This article is for subscribers only.

This article is part of the July 29, 2019 issue of businessweek.

Negative interest rates from central banks come with costs. They’re blamed for squeezing banks, punishing savers, keeping dying companies on life support, and fueling a potentially unsustainable surge in asset prices. This isn’t lost on policymakers at the European Central Bank, who pushed a key rate below zero in 2014. But consider their position: Making money cheaper is the main tool they have to boost stubbornly slow growth. And they aren’t getting a lot of help from governments.

ECB President Mario Draghi recently grumbled that monetary policy had taken on a “disproportionate” burden in recent years. He and others warn that when the next downturn hits, governments will need to play a bigger part in aiding growth with fiscal stimulus. Christine Lagarde, the outgoing head of the International Monetary Fund—and Draghi’s expected successor at the ECB—has urged Germany, which tends to have budget surpluses, to cut taxes and raise spending.