ECB stimulus seen as too small, more expected

AP News
Posted: Dec 11, 2014 8:02 AM

FRANKFURT, Germany (AP) — The European Central Bank has handed out 130 billion euros ($162 billion) in cheap, long-term loans to banks — part of its effort to stimulate the struggling eurozone economy.

Analysts said the amount was too small and made it more likely the ECB will soon have to take more drastic steps such as large-scale bond purchases.

The figure for Tuesday's loan offering was closely watched in the markets because ECB president Mario Draghi has said the bank will add roughly 1 trillion euros in new stimulus in coming months.

Banks took money for four years at the very low interest rate of 0.15 percent. The ECB hopes the banks will lend the money on to companies so they can expand, hire people and get the economy going again.

Analysts said the amount banks wanted was too low to help achieve the 1 trillion-goal — and makes it more likely that the ECB will have to resort to new stimulus programs to reach it. That could include using newly created money to make large-scale purchases of government bonds.

The U.S. Federal Reserve made such large-scale bond purchases, which were credited with reducing unemployment and boosting the recovery. Some economists and ECB officials have questioned whether they would have the same effect in the eurozone. Draghi has promised additional measures if the economy doesn't improve, but appears to face resistance from some members of the bank's governing council.

"The ECB will have to employ additional tools to reach its intended balance sheet size," economist Christian Schulz at Berenberg Bank wrote in a note to investors.

Top ECB official Benoit Coeure said the central bank's credit offers, including an 82.6 billion-euro round of loans in September, "create conditions that stimulate credit growth to the real economy."

The economy of the 18 countries that use the euro grew only 0.2 percent in the third quarter from the previous three-month period. Inflation remains alarmingly weak at 0.3 percent, and unemployment is high at 11.5 percent.