Eurozone Lending Continues to Contract

Lending to euro zone households and companies contracted for the 28th month in a row in August, though at a slower pace, putting a keener spotlight on European Central Bank efforts to get credit flowing again.

Euro zone banks, particularly in the crisis-stricken countries, have tightened up on lending as they adapt to tougher capital requirements and undergo health checks, while companies are holding back on investments, unsure of the future.

The euro zone economy ground to a halt in the second quarter and with inflation in what ECB President Mario Draghi has called the “danger zone” below 1 percent for almost a year now, the ECB saw the need to add new stimulus steps in June and September.

 
The ECB has now started to offer banks four-year loans at ultra-cheap rates and plans to buy asset-backed securities and covered bonds from October to lighten the weight on banks’ balance sheets and entice them to lend.

But economists in a Reuters poll are skeptical about whether the plan will work, saying bank lending to private euro zone businesses needed to grow at a 3-percent annual rate on a sustained basis to stir inflation.

via Reuters

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