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Dragui leaves monetary policy unchanged; calls on Euro zone countries to unleash fiscal stimulus

Friday, September 9th 2016 - 11:12 UTC
Full article 2 comments
Draghi said he hoped Euro zone governments might finally step up and unleash some fiscal stimulus, referring to a recent announcement at the G-20 summit Draghi said he hoped Euro zone governments might finally step up and unleash some fiscal stimulus, referring to a recent announcement at the G-20 summit

The European Central Bank made no changes to its current monetary policy on Thursday, leaving interest rates unaltered and taking no decision on whether to further stimulate the Euro-zone economy. The ECB’s governing council left the main refinancing rate at zero percent and the deposit rate at -0.4%, as expected.

 In its first meeting since the Bank of England decided to lash rates in August to mitigate the economic fallout from the Brexit vote, ECB policymakers in Frankfurt announced that the €80-billion-a-month bond-buying program, designed to inject liquidity into the Euro zone economy, would also remain unaltered, for now.

The so-called “quantitative easing” program is scheduled to end in March next year and currently has a ceiling of €1.7 trillion.

In the media conference following the announcement ECB president Mario Draghi said he hoped Euro zone governments might finally step up and unleash some fiscal stimulus, referring to a recent announcement made by policymakers at the G-20 summit in China.

“The ECB can basically flag what is needed for monetary policy to be even more effective that it is a this present time,” Draghi said.

“And I think what I just read on the G-20 is a quite powerful statement of commitment. The G-20 … It's not central bankers, it's governments; it's finance ministers. So they committed in their statement to use all policies, structural policies, fiscal policies, tax policy and to make government expenditure more friendly, which is something that all of you have heard me saying several times.”

Draghi has been urging governments to fulfill their side of the bargain on growth for several years and it looks like he might be about to receive his wish. Japan has already announced a major spending plan and the U.K. is set to unveil a new fiscal plan this fall to combat the effects that the vote to leave the European Union might have on the economy.

This comes at a time of increasing skepticism towards monetary policy and acceptance that central bankers have done all they can since the global financial crash of 2008. Draghi explained to his audience on Thursday that the composition of any spending program by government was “as important, if not more important” that its size.

In the run-up to Thursday’s meeting, a Bloomberg survey showed that 80% of economists had expected the ECB to take some sort of action on quantitative easing. Others believed the bank needed more time, partly in order to tweak buying rules to ensure that they would not run out of bonds to purchase.

In the weeks following the UK’s EU referendum on June 23, ECB President Mario Draghi and other bank officials had repeatedly hinted that they would keep up monetary stimulus to support Europe’s recovery.

Speaking at the Ambrosetti Forum in Cernobbio, Italy, last weekend, Yves Mersch, an ECB executive board member, said: “Economically, the pace of recovery in the Euro area remains unsatisfactory, with unemployment levels still too high.”

Data published by IHS Markit in July showed economic growth across the 19-country Euro bloc was at its weakest since the end of 2014. In August, Euro-zone inflation was also still far from the ECB’s 2% target, unchanged from July’s 0.2%.

Categories: Economy, International.

Top Comments

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  • Marti Llazo

    Compare borrowing rates in the EU to those here in Argenzuela:

    A typical loan here for upgrading your permanent residence for a 60 month loan period, has a basic rate of about 46 percent, but the annualised rate is over 57 percent. Mull that over for a moment.

    Sep 09th, 2016 - 02:04 pm 0
  • Bisley

    There's been enough “stimulus” in the last several decades that anyone paying attention must know that the only things being stimulated are the power of governments and the profit of the financial industry (at the expense of everyone else). These so-called economic wizards are liars and fools. The real solution to economic growth is the reverse of what they recommend -- but that would mean reducing their powers and profits, and relinquishing some of their control over our lives, businesses and property. They would rather see everything go to hell -- as long as they remain in charge.

    Sep 10th, 2016 - 06:55 pm 0
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