Libor Unplugged

This partly reflects borrowing cost differentials. If the local interest rate is 17 per year and the dollar interest rate is 2 , it still makes sense to borrow in dollars as long as the domestic currency is expected to depreciate 15 or less.

The main source of concern is that the low interest rates at which most European governments can currently borrow are not likely to last. There are two reasons for this.

With regard to the second problem, the interest rate on rescue packages should be reduced to the rate at which the EU itself can borrow on the market. This would have the advantage of developing an active Eurobond market.

The current trend in the United States dollar and euro exchange rates was also not favourable to such a move.

Such rates currently prevail in the eurozone, Switzerland, Denmark, and Sweden. And it is not just short term policy rates that are now negative in nominal terms about 3 trillion of assets in Europe and Japan, at maturities as long as ten years (in the case of Swiss government bonds), now have negative interest rates.

Moreover, unemployment in the eurozone has skyrocketed to an average rate of roughly 12 , with more than 50 youth unemployment in the periphery countries implying a long term loss of talent and erosion of the tax base. And, despite the spike in unemployment, productivity growth in the eurozone is decidedly negative.

Prices of bank shares and the Euribor OIS spread (a measure of financial stress) signal a profound lack of confidence in the sovereign debt of distressed countries, with yields on ten year Greek bonds recently hitting 25 . The crisis affects non Europeans too for example, concern over the exposure of American banks and money market funds to troubled European banks is harming US financial markets.

Meanwhile, Western central banks are using another kind of financial repression by maintaining negative real interest rates (yielding less than the rate of inflation), which enables them to service their debt for free. The European Central Bank s policy rate stands at 0.75 , while the eurozone s annual inflation rate is 2.5 .

on the interest rates on private loans.

Forecasters are revising down their estimates for 2014 eurozone growth to just 1 year on year. Unemployment remains at a staggering 11.6 in the eurozone as a whole, compared to 10 in the United States at the worst of America s Great Recession.

However, he believed that as the interest rate rise cycle of the Hong Kong Bank began and the Hong Kong dollar interest rates were normalizing, the situation that Hong Kong dollar interest rates were lower than US dollar interest rates would change in the future.

BRUSSELS The developed world seems to be moving toward a long term zero interest rate environment. Though the United States, the United Kingdom, Japan, and the eurozone have kept central bank policy rates at zero for several years already, the perception that this was a temporary aberration meant that medium to long term rates remained substantial.

In particular, sovereign debt in the eurozone was deemed riskless banks had only to hold minimal reserves against member countries bonds, which the European Central Bank accepted on equal terms at its discount window. Member countries could borrow at practically the same interest rate as Germany, and banks were happy to earn a few extra pennies by loading up their balance sheets with the government debt of the eurozone s weaker economies.

Considered high risk borrowers, SMEs generally have to pay much higher interest rates than larger firms in in many African countries the interest rate exceeds 30 (Kwaku 2003).

Fear over the growth effects of the European Central Bank s 2006 rate increases is based on confusion between real and nominal interest rates. By the end of the year, European interest rates will have been raised 150 basis points (to 3.5 , from 2 in January).

The industrial rate of return on ESA apos s science programme is now about 0.95.

Apart from the declining reimbursement rates, the euro dollar exchange rate was unfavourable for the operational budget during 2003 and 2004, resulting in a lower support cost income in the euro currency, despite an increasing volume of technical cooperation delivery.

Exchange rate euro to United States dollar

One could argue that the euro has been and still is overvalued, and that this has hindered many eurozone economies productivity relative to non eurozone countries. But the relative productivity deficiencies within the eurozone are more important for growth, and have nothing to do with the exchange rate.

That one size fits all approach meant that interest rates in southern European countries were too low before 2009, and too high in northern Europe. A gold standard rule would have produced higher rates for the southern European borrowers, which would have attracted funds to where capital might be productively used, and at the same time acted as a deterrent against purely speculative capital flows.

Similarly, the budgetary requirements represent a euro based calculation, with a rate of exchange corresponding to 0.901 US 1.

Rate is the periodic interest rate.

Finally, structural reforms require time to take effect. This is particularly true in the eurozone, whose members abandoned a crucial tool for accelerating the process exchange rate adjustments to account for different economies productivity levels when they adopted the common currency.

Results from fluctuations in exchange rates amounted to a net gain of 12,244.

What is at stake is too important to ignore. On its current policy path, unless oil prices fall, the ECB risks being forced to commit to substantially higher interest rates, and thus to a further increase in Eurozone unemployment.

Interest rates around the world are poised to rise. Short term rates have gone so low since the worldwide recession of 2001 1 and 2 , respectively, in the United States and the Eurozone, and practically zero in Japan that a strengthening world economy will force central banks to tighten the monetary reins.

The fact that the Provident Fund humanitarian loans do not carry any interest rate (commercial or otherwise) renders the effective interest rate method for amortization inapplicable, as there are no interest deductions from the repayment instalments as required by the effective rate method.

Apart from the declining reimbursement rates, the euro dollar exchange rate was unfavourable during 2003 and 2004, resulting in a lower support cost income in the euro currency, despite an increasing volume of technical cooperation delivery.

The era of low interest rates that followed the decision in 1995 to introduce the euro inflated a massive credit bubble in southern eurozone countries, which was sustained until the end of 2013. During this time, Italy became 25 more expensive (on the basis of its GDP deflator) than its eurozone trading partners.

Inflation in the euro area was then slightly above 2 . Given the movements in the euro s exchange rate in previous months and sluggish growth in the euro area, we expected that inflation rates would decline, but only to levels close to 2 .

The equivalent in euros of contributions paid in US is calculated at the most favourable rate of exchange (normally the market buying rate) available to the Tribunal on the date of payment.

There is no indication that the ratio will decline anytime soon, which is particularly worrisome, given the low profitability and high borrowing costs that China s industrial enterprises face. Indeed, Chinese firms profitability amounted to just over 6 last year, with 2012 profits for China s 500 largest (mostly state owned) corporations barely exceeding 2 .

In any case, the eurozone seems stuck with near zero rates at increasingly long maturities. What does this actually mean for its investors and debtors?

Though interest rates across the European Union are at historic lows, government debt in the eurozone could come under severe pressure should bond markets re evaluate the riskiness of sovereign borrowers. That is a consideration that should weigh heavily on indebted governments as they submit their budgets for scrutiny to the European Commission.

High borrowing costs are needed to focus minds and instill discipline. Were the ECB to take aggressive action to bring them down, moral hazard would result countries would face no punishment for delaying reforms.

Opponents of open ended ECB action argue that Italian and Spanish borrowing costs are not actually that high interest rates have merely returned to levels seen in the run up to the introduction of the euro, when investors distinguished properly between the countries that now share the euro. High borrowing costs are needed to focus minds and instill discipline.

The Syrian field also achieved an annual repayment rate of 97 per cent at the end of 2004.

Pushing up asset prices and pushing down the euro s exchange rate will require the ECB to buy bonds on the secondary market not the crisis countries bonds per se, but those of all eurozone members. In other words, it will require quantitative easing.

But, to do so, we will need to make EU institutions more efficient, with better regulation and a lower administrative burden. Common institutions are needed to ensure that all EU countries interests are protected, and to act as a bridge between eurozone and non eurozone member states.

To prevent this, the eurozone needs a risk free interest rate. The struggling economies need lower borrowing costs, or they will suffocate economically (and political support for eurozone membership will evaporate).

According to a knowledgeable ECB source, however, Europe s finance ministers regularly meet in secret with the ECB leadership for a mutual and frank exchange of views on monetary policy and other issues. The dialogue already exists though the public does not know it.

(a) The Registrar shall establish the operational rates of exchange between the euro and other currencies, on the basis of the operational rates of exchange established by the Secretariat of the United Nations.

Yet, strangely, it is the Fed, not the ECB, that has set an unemployment target. The US unemployment rate has declined to around 7.7 and the current account deficit is close to 500 billion, while eurozone unemployment is at a record high, near 12 , and the current account shows a surplus approaching 100 billion.

Indeed, for ten years, north to south income transfers and lending financed excessive aggregate demand, making the eurozone seem stable. As markets underpriced risk in order to lend to increasingly indebted countries, pressure on interest rates diminished.