Super Mario?

The European Central Bank's decision to adopt negative interest rates is not the first time this has

happened. In Switzerland in the 1980s it was fairly common in order to stop upward pressure on the Swiss Franc, and it is worth noting that it didn't help much. The markets decided Swiss Francs were the place to be and suffered the cost.

What ECB Governor Mario Draghi has done will have a short term effect of pushing the euro down, but it may be too little and it is quite likely to be too late.

Here is how it would work.

1. A bank, let's say French, keeps money on deposit at the ECB because it is safe there: safer than depositing it with another French bank and a lot safer than lending it to a French company.

2. It either keeps the money at the ECB, wearing the cost, or draws it out.

3. It decides whether to shrink its balance sheet, that is to say repay the corresponding creditor, or lend it to someone else. The other French banks are in the same position, as are most European banks, so it seeks out a company to lend to.

4. The company borrows for a new project, which it is cautious about because Europe is already depressed.

5. It slowly invests and takes on workers.

6. The workers, once they have been employed for a bit, feel confident and spend more.

7. That extra spending generates more investment and the eurozone recovers.

Apart from the fact that in those seven steps a lot can go wrong, it is easily seen that it takes time. The economist's rule of thumb is 6-9 months before industrial activity picks up and a further 6-9 months before prices improve.

Has Draghi left this too late?