Central banks can't fix everything.
Economists generally praised the moves, which are designed to raise dangerously low inflation in the 18 countries that use the euro and encourage lending. The ECB's steps could also make exporters more competitive by reducing the euro's value and thereby making
But they say
The ECB's "actions will help, but only on the margin," said
Zandi says banks across the continent must strengthen their own finances, possibly with taxpayer help, before they're healthy and confident enough to ramp up lending. Countries such as
Compared with other central banks around the world, the ECB has been a laggard. The US Federal Reserve and other central banks long ago used up their traditional tool for fixing economies — cutting short-term rates to near zero — and then unleashed more untested measures. The Fed, the
The ECB has balked at going that far. It balked again Thursday. But President
For the first time in its history, the ECB will start charging banks for depositing money at the central bank. This step — called a negative deposit rate — is intended to nudge banks to lend rather than hoard cash. Draghi pledged to do still more, raising hopes among investors that he will pursue a big Fed-style bond-buying program in the future. "Are we finished?" he said at a news conference. "The answer is no."
The eurozone clearly needs the help. Its economy grew just 0.2 per cent the first three months of the year from the October-December quarter. Inflation is running at a perilously low 0.5 per cent.
Excessively low inflation is unhealthy. It makes it harder for consumers, companies and countries to repay debt left over from the eurozone's financial crisis. And it raises fears of an outright drop in prices — deflation. Deflation can kill economic activity and business profits by causing people to delay purchases in anticipation of even lower prices.
Draghi succeeded in reassuring investors that the ECB will act aggressively to sustain the eurozone's recovery and raise inflation. Analysts had feared a market sell-off if the ECB had done something half-hearted. Instead, stocks rose Thursday in
But many analysts doubt that the benefits will endure. "It's not going to make the slightest difference" in the long run, said
European banks aren't lending much not because interest rates are too high. It's mainly because
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