Growth: the ECB will she get out measures “bazookas”? – Le Nouvel Observateur

Growth: the ECB will she get out measures "bazookas"? – Le Nouvel Observateur

The eurozone can not definitely to resume growth. France is down, Italy in recession, Germany is stagnating and falling hard eurozone. Emphatically, all eyes turn to the European Central Bank (ECB). But it does not have much ammunition to fight against the risk of deflation and stagnation.

“It is no longer possible to talk about recovery in the euro area,” said Ralph Solveen, economist Commerzbank. Then calls the foot to the ECB are becoming increasingly urgent.

The finance minister Michel Sapin calls on ECB to throw all his forces in battle. Recently, Prime Minister Manuel Valls ruled the monetary institution “powerless” against the risk of deflation.

What are the initiatives taken by the ECB?

The ECB has made early June an arsenal of measures which it still hopes for positive effects on the economy.

Among them and the very long term (TLTRO) a program of targeted loans, up to up to 1.000 billion euros, which will allow banks to finance on favorable terms, encouraging them to increase lending to businesses. The first of these loans will be awarded in September.

The guardians of the euro also increased the Principal to a new record low rate, 0.15% and the deposit rate below zero in order to encourage banks to lend more, imposing a financial penalty on those who store their cash with her.

These tools “are taking the path of the real economy” and “will contribute to a return of inflation” to more sustainable levels, assured last week ECB President Mario Draghi.

“The ECB will play for time” with the hope that these measures fully effective, said Gilles Moec, an analyst at Deutsche Bank.

For the institution, the ball is now in the court of governments, it calls for further reforms, noting that those who are hitched are doing better than others.

Measures “bazooka” of the central bank

But Jonathan Loynes, of Capital Economics, believes “The ECB will have to act again.” The situation “is still too low to resolve debt problems in peripheral countries, or reduce the risk of inflation,” he argues.

The margin for lower rates reducing to a trickle, remains the option of non-conventional measures, described as “bazooka” by analysts

The hope of the French leaders -., and others – that the ECB would unsheathe these measures with such a massive program to buy public or private debt (quantitative easing or QE) as that used in the United States by the Fed. Not sure, however, that these calls are reflected in the central bank.

The statutes of the ECB and the reserves of some countries such as Germany make it difficult redemptions of government bonds. The institution reflects instead of a way to revitalize the market, since the crisis stricken with collateralized loans (ABS), to facilitate corporate financing.

Such levers will however activated “if the inflation forecasts of medium-term (ECB) changed,” warned Mario Draghi. That is not the end of the year, most analysts believe

Their effectiveness is also far from unanimous. “QE would be pretty ineffective in the euro zone” since “the private sector deleveraging, the lack of need for liquidity of banks, and the very low rate of interest already, “Judge Patrick Artus, Natixis.