The ECB cut key benchmark rates to 0.15 percent from 0.25 percent and the Euro marginal rates to 0.4 percent. Lastly overnight lending of deposits rate to negative 0.1 percent.

Overnight lending is now below zero at negative 0.10 percent rates. As Japan had once done. This will now create a loaning situation where lenders will pay European banks which are part of the Central Bank system a 0.1 percent on all money deposited overnight.

The idea is, if it works properly is that with the safety and security of the Euro as a Reserve currency, there will be an influx of funds and foreign investment. These funds will permit lenders to loan out money into the European economy and stimulate spending, development and job creation.

“I welcome the decision by the European Central Bank to lower interest rates and to improve the financing of the economy. The central bank realized that the main problem was deflation and not inflation.”, Francois Hollande, President of France said in remarks at the G7 meetings in Brussels.

Economic indicators in Europe throughout last week, continuing into this week were pointing to deflation. As a result, the ECB reacted to these signs of deflation and decided to stem a worsening of a deflationary spiral downward.

The Euro reacted initially by dropping versus the dollar and appeared to make a run at an almost full percentage point down to 1.35euro. The Euro traders and bears could not push the currency beyond the 1.35euro price. This would have been a breach of February lows and entered the lowest level for 2014.

European bonds reacted with immediacy, as well as the US Bond markets to the ECB news. The 10-year US Treasury saw immediate selling, raising US rates briefly. As Mr. Draghi started his news conference investors went back into buying of Treasuries. This follows in the US continuing from last week as steep sell off from Highs achieved towards the end of May. However, German, Italian, Spanish and French bonds all had rates drop precipitously to multi year lows. Italy’s 5 and 10 year yields, respectively are 1.59 and 2.94 percent. German 10 Year bunds rose in price and fell in yield to 1.41 percent.

Angela Merkel, Chancellor of Deutschland said that Germany will deal with the fallout from the ECB decision. This is especially important because of the large number of savers in Germany. Germans use the savings accounts as part of their annual income. Therefore, as rates fall, savers in the country and other high savings blocks will be hurt by the ECB’s decision.

“The rates that we changed are for the banks, not for the people. Of course, commercial banks may react to out decision by choosing to lower their rates if they think they should do so. Then this would be transferred to savers. But its not us, it is a decision taken by the banks.”, Mario Draghi, President of European Central Bank answered a ZDF media reporter’s question of the decision affecting German savers.

The ECB will also be extending a nearly Half a Trillion dollar line of credit, similar to Quantitative Easing as a direct stimulus.

Bill Gross, head of PIMCO remarked that the “New Neutral” is effectively taxing savers in order to fund the debtors”. Mr. Gross suggested finding alternative sources of earnings. Gold was up on the day in New York trading.

Mohammed El Erian in his Twitter comments “Its an ambitious and impressive move. Question remains if monetary policy alone can achieve European economic liftoff?” – @elerianm

Reporting from G20News.com

Angela Merkel, ECB, Euro, Francois Hollande, Mario Draghi