Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Can the European Central Bank revive European growth?

Can the European Central Bank revive European growth?

Can the European Central Bank revive European growth?
The month of September turned out to be one of synchronised global monetary stimulus. The European Central Bank (ECB) re-opened the monetary spigot, delivering a multi-faceted expansionary policy at the September meeting of the Governing Council. The strategy includes a reduction in the deposit rate by 10 basis points, from -40 basis points to -50 basis points, effectively increasing the cost levied on overnight bank deposits.

With no rate cuts since early 2016, the objective is to push European banks to lend more. However, the initial introduction of negative rates has not resulted in increased lending. To curb the impact on bank profits, ECB president Mario Draghi also announced the introduction of a tiered deposit rate, whereby bank deposits exceeding six times mandatory reserves will be exempted from this levy.

The ECB’s plan also includes the reintroduction of its quantitative easing programme in November, with the purchase of 20 billion euros in bonds per month for the foreseeable future, or at least until shortly before the first rate hike. The expansionary package also allowed for easing the terms on TLTROs (Targeted Long-Term Refinancing Operations), the mechanism whereby the ECB lends cheap money to banks for multiple years in the hopes of spurring increased lending activity.

The ECB was not the only central bank taking a more accommodative stance in September. On the other side of the Atlantic, the Federal Reserve (Fed) cut its benchmark rate by ¼ point – the second cut in two months – citing undesirable global developments and a lack of inflationary pressures. Although both the Fed and the ECB have injected stimulus into their economies the effectiveness of such actions has been mixed.

Having just completed a three-year monetary-tightening cycle, the Fed still has some room to ease further if necessary. Although the ECB and the Fed both embarked on quantitative easing programmes after the financial crisis, Europe has not experienced the same recovery as the US. Despite years of monetary easing, the ECB has struggled to revive growth and attempts to achieve its 2% inflation target seem futile. Now, with the current negative yielding environment the ECB has far less leeway than the Fed to withstand a decline in economic growth.

Some argue that the dismal growth and inadequate economic recovery of the Eurozone is a direct consequence of the structure of the European Union and the objective of the Eurozone’s central bank. The US has the ability to cut interest rates, which can help to devalue its currency to help increase net exports, as well as increase fiscal spending, if needed. However, the Eurozone has primarily had only one lever at its disposal; monetary policy on behalf of highly disjointed economies.
Trying to set monetary policy for 19 countries with distinct economies and fiscal policies in the hopes of stimulating growth across the EU is beyond challenging. Germany, an export-driven economy and generally seen as the most important economy in the Eurozone, is currently experiencing a recession in its manufacturing sector. That does not bode well for the rest of the EU. Likewise, the fiscal situation across the member nations calls for different strategies among the currency bloc. Germany has more-than-sufficient capacity to finance fiscal stimulus and endure a budget deficit, especially amid an economic slowdown in the bloc, whereas a country like Italy has less capacity to borrow and therefore needs to manage budget deficits better while continuing to implement structural reforms.

The ECB’s announcements came at a time when the Eurozone economy faces increased risk of a recession due to a manufacturing slump and dampened business sentiment as a result of Brexit and the US-China trade war.

Many are calling for fiscal stimulus to step in as monetary policy seems to be reaching its limit. Yet, any plans to take a step closer to a fiscal union will likely face significant opposition from fiscally conservative member states and, despite all the willingness in the world, the ECB does not have the authority to make this a reality. Undoubtedly, with monetary policy sapped, it’s time for fiscal policy to come to the rescue.

Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
×