The European Central Bank’s (ECB) recent half-percentage cut in the euro basic rate created a great deal of upheaval because of the fact that, given the much higher inflation rate, it sent the real return on deposits even lower; inflation remains persistently above 3.5 percent and the after-tax yield on deposits is no more than 1.5 percent. Greece last saw such nominally low interest rates – or lower – in the 1960s, which was a period of rapid economic growth. But the real rates were better then because it was also a period of minimal inflation. Really positive interest rates were only seen when the deregulation of the banking system began. At the start of the previous decade, interest rates shot up to higher than 20 percent, creating the infamous rentiers, as the late premier Andreas Papandreou referred to them. The reasoning behind such high rates then was the commensurately high inflation, the need for protecting the drachma from the ever-present danger of devaluation and, generally, the huge imbalance in the economy. None of those considerations apply now. The problems are different and the country is in the stable monetary environment of the eurozone. This stability, however, has new rules. One of these is that interest rates are common for the entire eurozone, with the especially small differences from country to country also to be found within the country. The problem of negative yields on deposits is expected to grow worse in coming months, as ECB is expected to have to press its basic rate even lower. If the European economy proves unable to get its feet moving, it will not be surprising to see interest rates at around 2 percent or even lower. Thus, the problem for savings will remain, even though the total volume is projected to increase. According to the latest revision of the Greek Stability Program, the average propensity to save will rise to an estimated 10.2 percent in 2003 and 11.3 percent in 2004 from 8.3 percent in 2001 and 8.5 percent this year. The trend was confirmed in an interview on Sky 100.3 radio by Bank of Greece Deputy Governor Panayiotis Thomopoulos, who suggested that the increased feeling of insecurity created by negative interest rates can actually induce savers to save more, citing Japan as an example. He also pointed out that the Greek households’ real incomes (after inflation and taxes) are rising yearly at a rate of 3 percent. The government this week appeared to show some sensitivity to the problem of negative deposit yields and suggested it was preparing to introduce tax-free savings bonds carrying 4-percent interest. But it backed away, quite plausibly under pressure from banks, which were unlikely to take this form of competition from the State lying down. Thomopoulos also pointed out that differences between savings and lending rates of Greek banks are not huge, compared to elsewhere in the eurozone, and that their profitability has fallen since the crash of the bourse.