© AP Photo / Emilio Morenatti
Christine Lagarde began her work as the head of the main financial structure of the European Union, the European Central Bank with tough statements. She suggested that the Europeans analogue of the well-known choice between life and purse, and the choice is already made for them.In an interview on French radio RTL, which aired last week, Lagarde strongly identified a desire to continue the policies of his predecessor Mario Draghi has formulated an interesting response to criticism of ECB action on the part of pension funds and those of Europeans, whose accumulation can not bring them income because of negative interest rates.Quoted by the Financial Times: “We should be more happy to have a job than what they have the protection of our savings. I think that this is the spirit of monetary policy, which was decided by my predecessors, and I think they made quite a useful choice,” said the former head of the IMF.
It’s striking in its honesty confession: before the European Union, it turns out, was a choice between “protection of savings” and a crisis of employment and preservation of jobs was paid for by destruction of the ability to generate income through savings. This is a direct and not an obvious consequence, which is not being said Lagarde, but which literally screaming European pension funds yesterday and the policy of the European Central Bank will lead to the fact that the Europeans will lose their promised pensions.Agency of business information Bloomberg describes the problem faced by all pension funds, but which is particularly evident in the European Union with its negative interest rates the Euro:
“The once-unthinkable decline in the yield of global bonds is forcing pension funds to buy bonds offering negative returns, which jeopardizes the financial security of future retirees. (Financial) institutions USA, management of pension savings in the trillions of dollars, including public employees ‘ retirement system of the state of California reduced the expected revenues. Government pension investment Fund of Japan, the world’s largest, warned that managers run the risk of capital losses for all classes of assets. In Europe, pension funds may be forced to cut pensions, partly because of lower (interest) rates.””The real madness is that pension funds are forced to invest in assets that are guaranteed to lose (money), said mark Dowding, the Director of investments at BlueBay Asset Management, a financial company, which controls including the pension Fund. — Is financial vandalism, and the government and Central banks should be aware of this”.
Position Lagarde points to the fact that she has a clear understanding of what happened, but have no desire to change anything. From her point of view to pay lower pensions in the future (and income for all who put at least some money) for social stability, today is a very good idea. It should be emphasized that we are not talking about some of the risks that belong to the distant future. Problems of pension funds in the European Union begin now, and it’s not the rating of Russian journalists, and the opinion of the pension funds. The most obvious example is the situation in the Netherlands, whose retirement system is considered to be almost exemplary.Bloomberg reports: “Peter Borgdorff from the Dutch Fund PFZW (assets under management 161 billion euros. — Approx. ed.) accused “all of a lower interest rate for the Euro” that the coverage ratio of its Fund at the end of July amounted to 94.8 per cent. “The financial position of the PFZW starts to become heavy — Burgdorf wrote in his blog. — The pension reduction in 2021 have long threatened us. But if at the end of this year we will have a coverage ratio below 94% we will have to reduce pensions next year”.
The coverage ratio, which says the head of one of the largest pension funds in Europe — that (if roughly) the ratio of Fund assets to the retirement benefit liability. The ratio of 94% means that the Fund should have retired more than he’s got money, and so the only way to avoid bankruptcy — a decrease in pension payments. By the way, in the Dutch case, the government guarantees to pensioners only a payment of 50% of the minimum monthly wage, and therefore rely on the fact that “the budget will save all” is not necessary.Evaluation a specialized publication Investments and Pensions Europe, two major Dutch pension funds will have to reduce pensions in 2020 by 6.7% and 4.5%.
If the European Central Bank will continue to lower interest rates on euros into negative territory, the situation of pension schemes will deteriorate even faster, and pensions will fall along with yields on deposits in euros. The same trend can now be noticed in virtually all pension systems of the Western world, but Europe has progressed furthest because of the activity with which the predecessor Lagarde at the helm of a major European financial institutions were engaged in “stimulating the economy”.If we describe this strategy schematically, it is the following approach: the ECB has cut interest rates for the Euro and bought (and still buy) the market government and corporate bonds in order to deprive pensioners of ordinary Europeans and European business opportunities to create savings through conservative instruments — deposits, premium bonds and so on. This was done to force them to spend money rather than save, which, according to the logic of European officials, would lead to overcoming the crisis and growth of the European economy. This measure was conceived as temporary, and its intended effect was supposed to launch before the retirement comes a bitter hangover, but a temporary measure has now become permanent.European retirees will face declining pensions, and the Europeans are massively transferred their savings in cash, because few people want to keep money on Deposit with a zero or negative rate. By the way, the recent discussion in the Russian information field of the ability to allow banks to impose negative interest rates on deposits in euros is explained by the actions of the European Central Bank (which, in fact, controls the interest rates on the Euro), and not some conspiracy theories that are popular among the financially illiterate influencers.
The monetary experiment, which is so actively complaining about pension funds from the USA to Japan and bankers from Zurich to new York, can not no good end, but to stop it. At least it can’t be done because of the political risks that would appear in that case, if the world will begin a large-scale recession due to the cessation of the artificial stimulation of the economy. This means that Western policy will require that the recognition of error and its consequences was postponed further and further.But the problem is that the ending is impossible to postpone indefinitely and the effects will still be the most serious. These effects are already beginning to show itself — at first in Europe and then almost everywhere.Ivan Danilov