You’ve just made your morning coffee, and look up in horror as you realise that the gas burner has set your kitchen ablaze. So you take decisive action: you pour your coffee on the floor.
Such is the real impact of the European Central Bank’s latest attempt to revive the European economy, which cut rates a whopping 0.1 per cent (from 0.15 per cent to 0.05 per cent), and increased the negative interest rate imposed on bank reserve deposits from a huge ‑0.1 per cent to a gargantuan ‑0.2 per cent.
Forgive my sarcasm. But the mystery that should occur to everyone — and it probably does to most people who haven’t been given a £9000 lobotomy (as Aditya Chakrabortty recently described an economics degree) — is why an economist might think that such apparently trivial measures would have any impact on the disaster that is the eurozone economy.
Ah, but an economist can tell you why. It’s because of the ‘money multiplier’! This potent force will turn that allegorical puddle into a proverbial sea that will drown the flame of 25 per cent-plus unemployment in southern Europe.
The fable theory goes like this.