The truth is laying in the details . .
The case of action in the European Union
FRANKFURT, Germany Should the European Central Bank give another push to an economy that’s not rolling fast enough to raise excessively low inflation.. ?
This is the question facing the bank’s member governing council when it meets Thursday at its skyscraper headquarters in Frankfurt, Germany. The council, headed by President Mario Draghi, decides on interest rate benchmarks and other monetary policy steps for the 19 countries that use the euro currency. Some analysts say the ECB may increase its stimulus efforts because of uncertainty over Britain’s June 23 voted to leave the European Union and its tariff-free trade zone. So far, economic data doesn’t show much damage to the euro-zone. Of more concern is the longer-term impact. A new trade deal could take years to negotiate and could take years to sort out, leaving businesses unable to plan effectively and hurt the trade deals . . Inflation is only 0.2% annually, far short of the ECB’s aim of just under 2%. Even when volatile items like food and oil prices are excluded, inflation was a weak 0.8% in of August. Unemployment, on the other hand, is at a painful 10.1%.
Others argue things aren’t really that bad. The euro-zone has been growing at about a 1.6 percent annual rate for the past six quarters. That’s not great, but not a disaster, either, and the central bank alone may not be able to do much to improve growth anyway. More monetary stimulus won’t raise the level of potential growth in the absence of economic reforms by governments.
If the ECB does act, one of the more likely steps would be to extend its current 80 billion euros ($90 billion) per month in bond purchases from banks and other financial institutions. Such purchases pump newly created money into the banking system. The ECB has already bought over 1 trillion euros worth, on its way to an expected 1.74 trillion euros. Pumping money into the economy can help raise inflation, though results have so far been modest. The ECB has also cut its benchmark rate to zero, and the rate on deposits it takes from commercial banks to minus 0.4%. The negative rate aims to push banks to lend excess cash, not hoard it. The bond purchases are set to continue at least through March 2017, or until inflation turns up. The ECB could say Thursday that the purchases will definitely run for longer. The bank’s goal over time is to achieve inflation of just under 2 percent, the level the bank says is most consistent with a strong economy.