Europe’s stock markets initially felt enthused over the decision by the eurozone’s central bank Thursday of cutting down the main interest rate to 0.5 percent from 0.75 percent. Cheaper credit.
Then, the disillusion came in and the jump turned out to be another short-lived spasm because of the lack of detail about financing plans for small and medium size companies, the uncertainty on how deep the ECB would intervene to help the recovery of the economy, and the sorry conclusion drawn from any comparison of governor Mario Draghi to his colleagues at the US Federal Reserve, the Bank of England and, lately, the Bank of Japan.
Advocates of allowing private and public sectors more time to deleverage–to clean their balance sheets from toxic assets and admit their real value minus booms and bubbles–were left hopeful that the ECB may take further action in the near future. But critics abhor this sort of tricks, which artificially inflate prices and prevent the world to face its new, much poorer normal. In fact, the central bank also said it would keep lending in the short-term to eurozone banks until July 2014.
In April, the purchasing managers index in manufacturing was negative in all countries of the European Monetary Union. Critics are not alone in their pessimism, indeed: otherwise, why would banks still have up to €120 billion deposited with the ECB, instead of using them to prop up businesses and consumption? At zero percent interest rate?
Perhaps both sides of the house could find some common ground: Draghi should implement negative interest rates for bank deposits with the ECB. Why should the eurozone’s central bank let lenders become so lazy as to profit from doing nothing? Wouldn’t banks work out how to take some returns from those billions by spreading them on to the real economy? It may sound old-fashioned, but banks certainly need soul-searching exercises.