Interest rates are artificially kept at very low levels in Europe, in a hope of relaunching the local economy. But, contrary of the desire to improve the liquidity of the market, this might be the very one to be hurt. Money market funds are withdrawing their assets from Europe and prefer to relocate them to locations where they can get a decent profit, given their risk profile. Especially during the liquidity crisis of the Credit Crunch, money market funds proved their usefulness in providing the so much needed cash to the markets. Without an important source of funding, how is the European banking going to react?

From 2004 to 2006 the ECB collateral in non-marketable assets represented less than 5%, while in 2013 it represented more than 30% of the total collateral value. On the other hand, the central government securities keep being in an amount more or less constant, while their percentage figures keep decreasing, from about 25% in 2006 to about 15% in 2013. If Europe wants to keep providing liquidity to the market, and if this is going to be done in exchange of even more non-marketable collateral, the real value of the funding it provides might not sustain a future financial shock.

The dollar lost even more of its credibility since the USA debt and budget issue being brought in the spotlight. If interest rates will increase in Europe, the EUR will appreciate even more, thus hurting an already fragile economy. On the other hand, with R&D in decline (only 9 out of the top most 100 high-tech companies located in Europe), the economy can not rebound by itself, outside of foreign investments. China, lately interested in investing abroad started doing not so well as before, to afford the pace of investing abroad.

Negative interest rates are one of the most viable options and represents, at least from financial engineering point of view, a blowingly rich subject.