Low take up of cheap ECB loans by banks makes money printing more likely

Now Reading:

Low take up of cheap ECB loans by banks makes money printing more likely

Text size Aa Aa

The European Central Bank’s attempts to get the eurozone economy growing again have suffered a major blow.

Its second offering of loans at almost zero interest did not get much of a take up from commercial banks.

Of the 400 billion euros of ECB loan money on offer this year, the banks have availed themselves of only just over half.

They say the region’s economy is in such a poor state that there is weak demand for loans from businesses.

The low take-up makes it all but certain the ECB will soon be printing fresh money to buy government bonds, pumping billions of euros into the region’s economy.

But there are deep divisions within the ECB on that with Germany fearing it would encourage reckless borrowing by spendthrift states which already have huge debts.

The other problem overshadowing the eurozone is the prospect of deflation.

Underlining the gravity of the situation, France’s core price inflation turned negative, its first drop since records started in 1990.

If price inflation starts falling across the eurozone, the ECB would be left with no choice but to print more money immediately.

Deflation is seen as dangerous for an economy, as consumers put off buying things in the hope that prices will fall further, ultimately forcing companies out of business.