In a remarkable TV interview, Otmar Issing, the former Chief Economist of the European Central Bank and a former member of its Board, dismisses negative interest rates as a solution to what ails Europe. According to Issing,
... low investment is certainly not due to too high interest rates. It’s due to regulation, political uncertainty, global uncertainty, etc. I don’t expect that negative interest rates are really a solution to present problems. The reduction of interest rates, if it could be done, deeper into negative territory would not change anything but it has tremendous negative consequences for the financial system.
Issing also emphatically rejects the hysterical deflationphobia of most central bankers and macroeconomists and points out the benefits of deflation:
When I hear the word ‘deflation,’ I always have to say: “What do you mean by that?” I think the only case in history in which we really had dangerous deflation was the Great Depression when prices fell by 30 percent in a very short period of time and expectations that tomorrow was cheaper than today and delaying investment, delaying consumption, etc., was a real issue. Nowhere in the world you can really observe that, not even in Japan. You have a mild negative inflation rate with no acceleration potential. And why are we in such a low inflation environment? Mainly because of low oil prices, low commodity prices and this is a global phenomenon. So for the consumer this is the best of all worlds you can think of. There is no negative connection between low inflation and growth. This is just something that is for me more a fantasy than reflecting empirical results.
