We are now definitely entering a period of consequences. Consequences of what? We are yet to know. Germany has auctioned off five-year government bonds at a negative yield for the first time in its history! Putting this simply, the German Government is asking investors to lend them money for five years, after which they will return only part of it back. That is, you have to pay a fee to the German Government to keep your money!
On Thursday, the European market woke up to a surprise shock from the land known for its cuckoo clocks. The Swiss National Bank (SNB) delivered a one-two punch to the financial market by abandoning its policy to cap the relative value of the Swiss franc (CHF) to the euro (EUR) and cutting its deposit interest rate to MINUS 0.75 percent. You didn’t read it wrong. Negative interest rate. Needless to say, the market is in turmoil.
Here is a great article by Cullen Roche on the future of European currency union. The key message of their problem is the lack of fiscal transfer between European countries. The best analogy is to think of the USA as a union of 50 countries under one shared currency. Extreme trade imbalance exists between these states. The federal government addresses this problem by fiscal transferring from trade surplus states to trade deficit states through government aid programs. See infographics below: