The ECB is currently killing the savers with its ridiculous interest rates: the Cyprus case should prove to European citizens, that it is time to stand up and “fight for their right for interest”

On 16 March 2013, Dutch Finance Minister and Chairman of the Euro-group Jeroen Dijsselbloem and President Nikos Anastasiades of Cyprus opened ‘Pandora’s box’, probably without realizing this initially.

With their initial proposal to bail in all savers – even the smallest – at the Cypriot banks ‘Laika Bank’, ‘Bank of Cyprus’ and (to a lesser degree) the other Cypriot banks, Dijsselbloem and Anastasiades created unrest among all savers great and small in all European countries.

In the follow-up of the event, the saver’s bail-in got restricted to the savers with savings amounts above €100,000 euros. Nevertheless, the damage was done.

The underlying message of the troika IMF, ECB and Euro-group was: your savings beneath €100,000 are not save anymore ‘beyond reasonable doubt’, in case of a credit event at your bank.

This was a shocking, but obvious conclusion: the solidarity between nations within the European Union had been stretched to the limit with the Irish, Portuguese and especially Greek bailouts during the last few years. Especially the Germans, the Dutch and the Finns became more and more fed up with, what they called, ‘footing every bill for the South-European countries’.

In the aftermath of the Cyprus event, Dijsselbloem shocked the financial markets and the (Anglo-Saxon) press even more with his message that the followed approach for Cyprus could and perhaps would act as a template for future rescue actions.

After this somewhat blunt, but perfectly clear (and in itself not unfair) statement by Dijsselbloem, various officials tried to downplay the situation and sugar-coat his statements. Dijsselbloem himself blatantly shammed that ‘he had not understand the meaning of the word ‘template’. Really!’. 

Nevertheless, there was little to be misunderstood in his message:

The European taxpayers are not the ‘natural number one’ anymore to foot the bill of a bank bail-out.

First and foremost, the share- and bondholders of banks must foot the bill of a bank bailout; not only holders of subordinated paper, but, when deemed necessary, even the normal bondholders.

When the money of shareholders and bondholders is not sufficient for the whole bail-out operation, then even the savers might be approached to receive their share of the burden.

And in spite of how rude this might sound today: there is nobody that warrants you that the savers with a balance below €100,000 will not be bailed in, at any given moment in the (near) future.

Now let us take a look at the interest rates for (internet) savings accounts and deposits (savings accounts with limited withdrawal possibilities) of some of the most important banks in Europe. For reasons of convenience and time, I restricted myself to the most important banks in Germany, The Netherlands, Belgium and France. The interest rates in countries, like Italy, Portugal and Spain might be slightly higher, but they won’t differ very much, is my conviction.

The interest data from the aforementioned countries is breathtaking, if you give it a proper thought:

Today's interest rates for some of the most important banks
in Belgium, The Netherlands, Germany and France
Data courtesy of the mentioned banks
Click to enlarge

This interest data is of today: 3 April 2013. Although I did my best, it was quite hard for me to collect interest data that can be compared one-on-one with the interest data of the other banks, due to the differences in language, the competitive differences per bank and local constraints on savings’ accounts. Still, the data gives a quite accurate picture of the current interest rates at these banks.

I presume that the internet savings’ rate for CréditAgricole (CA) will only be paid under certain restrictions and conditions. Whatever might be the reason for this CA outlier rate, the other available rates for internet savings are never above 1.10% per annum at the mentioned banks in these countries.

The rates for non-withdrawable deposits with a maturity rate of 1 year are even worse. It feels almost like people have to be punished for handing out their life savings for a year, virtually without a chance to withdraw those in the meantime.

Even with a five year maturity rate of deposits, there is no bank in this table that pays more interest than the inflation rate for 2012 (source: Eurostat). That is a disgrace.

You could state that Mario Draghi’s ECB is slowly, but surely killing the savers and the pension funds with its extremely low – close to nought – interest rates. Effectively, the savers are punished with 1% - 2% penalty per year (interest rate -/- inflation rate) and that is even exclusive taxes on capital growth.

The reason is that banks nowadays can virtually lend money ‘for free’ via the ECB. Flesh and blood savers are almost considered ‘a drag’ to them. Sovereign bonds from the AAA-rated countries, like Germany and The Netherlands and the countries just below the triple A-ratings, still yield so little interest that a saver would be crazy to invest in those too.

This is one of the clearest signs that we are in a deflationary era nowadays, where the value of money actually increases and interest is almost at a negative rate. In such a deflationary era, wages and prices (should) go down. And indeed, the housing prices, prices for clothing and household appliances, wages and remuneration fees do go down, as a matter of fact.

The only factors that spur inflation, are fuel costs, costs for food supplies… and the local and central governments in the Euro-countries, which try to tax themselves out of misery at the expense of their citizens.

In other words, the sad true  is: the prices should drop and most of those do in reality, but it doesn’t feel this way: the absurd taxing measures by governments and soaring prices for fuel and food supplies prevent this price-drop from happening at the places where it really counts.

This feels like a double whammy for the savers: prices get higher, due to government interventions, but savings yield negative interest rates anyway!

Concluding, you could say that savers are forced into stock ‘at gunpoint’ by the ECB, if they do not suffer from an excess amount of masochism.

Still, there are millions of savers that don’t want to be forced into stock, because they don’t want to look at Bloomberg’s or Reuters all day. That includes ‘yours truly’.

But…

After Cyprus, people must understand that saving is not so risk-free, as they always thought.

Even the famous European €100,000 deposit guarantee stands tall, until it doesn’t anymore. With Cyprus, the deposit guarantee stronghold almost fell, just hanging on by a whisker.

What politicians and economic pundits told in the aftermath of Cyprus, is that people run a risk when they are looking for banks that pay a decent/good interest. Those fraudulent Russians and those greedy British took too much risk by investing in the house of cards, called Cyprus! Shame on them!

What they should have told, however, is that savers run a risk! Exclamation mark!

Like the Dutch chief economist of Citigroup Willem Buiter explained in ‘Het Financieele Dagblad’, last weekend:

 ‘Most European banks are zombie banks. Banks that still have insufficient solvability, in spite of their excess liquidity, and therefore cannot lend money to their customers anymore.

As a matter of fact, all these zombiebanks should be recapitalized by the European states: these should lend these banks a total of €2 - €3 trillion(!) in subordinated loans, in order to revitalize those banks again. Until this recapitalization happens, the European economies will muddle through an enduring crisis with soaring unemployment and soaring economic hardship’.

I happen to agree with Willem Buiter on this topic.

And please remember, the zombiebanks are not only the Cypriot banks.

They are also the aforementioned banks that pay you these disgraceful interest rates, mentioned in the table. I even dare to say: all the aforementioned banks!

Savers that have (much) money stored at these banks, should consider to write a letter to their bank, stating:”I demand a better interest rate for my savings. An interest rate that compensates my inflation loss and that reflects the (clear and present) risk that I run, by investing my money at this bank. If I don’t receive this improved interest rate, I am forced to withdraw my savings…”.

Please understand me right: I don’t want to spark a bank run at these banks. However, I do want the European savers to receive a fair interest for the undeniable risk that they run, just by putting their money at their bank!