Credit and money growth show early signs of euro policy failure

Chris Papadopoullos
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EUROPEAN policies are failing to inspire any revival in credit and money growth, official figures showed yesterday.

Eurozone bank lending to the private sector fell by 0.5 per cent year-on-year in October.

Growth in the European Central Bank’s (ECB) headline measure of money in the economy remained flat at 2.5 per cent year-on-year.

The headline measure of money is M3, which adds up all the euros held in the bank accounts of companies and individuals, as well as their notes and coins. M3 is used to gauge current and future spending.

In September, the ECB offered a round of cheap loans called targeted longer-term refinance operations (TLTROs) and began to purchase private sector bonds at the end of October. However, the latest data release may be too soon to judge the purchases.

“Money growth remains subdued and the ECB’s new liquidity operations did not provide much of a boost so far,” said economist Thomas Harjes from Barclays.

“In sum, the bank lending channel of the monetary transmission process still appears largely clogged, which supports our call that the ECB will move to broad-based asset purchases [including government bonds] by early next year at the latest.

“This will stimulate the economy further and ensure that inflation will eventually return to its target of close-but-below two per cent.”