International Business Eurozone Nations Face Stronger Pressures to Lift Economies By JACK EWING JAN. 22, 2015 DAVOS, Switzerland — As the European Central Bank deploys its most powerful economic weapon, the onus for growth now lies with the 19 individual countries in the euro currency union, a fractious and highly political group. The central bank’s plan calls for buying 60 billion euros, or about $69 billion, of government bonds and other debt each month. It is the kind of aggressive action that leaders in weaker eurozone countries have long wanted and that Germany has tried to block. Syriza, the leftist party expected to win the Greek elections this weekend, on Thursday called the bond purchase program “an important decision which the next Greek government will use for the benefit of the country.” The central bank, though, is stretching the limits of its power with the bond-buying program. And if it is not enough to address what ails Europe, any further stimulus efforts would fall to national leaders. Such steps would involve the sort of extensive government spending that many countries, particularly Germany, have been reluctant to pursue, hewing instead to a philosophy of budget discipline known as austerity. The German chancellor, Angela Merkel, on Thursday warned her peers not to waste the breathing space given by the central bank’s stimulus. “We should not become diverted from the fact that we as politicians need to put a framework for recovery in place,” Ms. Merkel said at the World Economic Forum here in Davos, minutes before the European Central Bank announced its decision in Frankfurt. The central bank’s plan, in part, is aimed at easing the burden on national governments by pumping at least €1.1 trillion into the system. The increased demand from the European Central Bank should raise bond prices and push down yields. If the tactic, known as quantitative easing, works, it would ripple through financial markets, pulling down the interest rates on other types of debt, like business loans. As a further stimulus step, the European Central Bank said on Thursday that it was cutting the interest rate it charges on loans to commercial banks, as long as the banks commit to lending that money to companies or individuals. The new rate would be 0.05 percent, down from 0.15 percent. The increased borrowing should help drive inflation and growth in individual countries. The plan could also give governments a share of any profit the European Central Bank might make in interest or in reselling the bonds later. Even if the central bank action does not reach Italian or Portuguese borrowers, it could still help. Mario Moretti Polegato, president of the Italian shoemaker Geox, said quantitative easing could help restore a sense of optimism. Many smaller Italian companies could get credit if they wanted it, he said, but they are too pessimistic about their business prospects to invest. “The E.C.B. move is not something that will replace what Italy needs to do,” Mr. Polegato said in an interview at Davos. But he added, “It’s a first step.” Any relief that national leaders feel might be clouded by the realization that there is probably not much more the European Central Bank and its president, Mario Draghi, can do to stimulate the region’s economy. On Thursday, Mr. Draghi once again emphasized that national governments need to step up their efforts to rekindle growth. “It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectation of higher incomes and encourage firms to increase investment today and bring forward economic recovery,” Mr. Draghi said in a statement. “Fiscal policies should support the economic recovery.” Quantitative easing programs have helped revive the economies of the United States and Britain. But the eurozone is not a single country. It is largely a matter of conjecture whether pushing down the interest rates on government debt and some other kinds of bonds in Spain, for example, would make it easier for a hard-pressed small business owner in Italy to get a loan. “The way it’s transmitted is the key,” Anat R. Admati, a professor of economics at Stanford University, said in an interview in Davos. Central banks “don’t control what happens after they give the money,” she said. “They make money cheaper and hope it finds its way to the real economy.” Lawrence H. Summers, a professor at Harvard University and former Treasury secretary, said during a Davos panel discussion that it was “a mistake to suppose that Q.E. is a panacea in Europe, or that it will be sufficient.” In a compromise intended to appease Germans fearful that they will pick up the bill if other countries do not pay their debts, the European Central Bank will delegate some of the bond buying to national central banks, which will also assume some of the risk. Analysts said that leaving some risk with individual countries could weaken the credibility of the program. Anticipating the criticism, Mr. Draghi said, “The singleness of monetary policy remains in place.” The European Central Bank has sometimes seemed like the sole eurozone institution seeking to restore the economy, in the absence of government spending stimulus. Eurozone leaders may now feel more pressure to act. But most of the changes that economists say are needed, such as loosening rules that make it hard for companies to fire unwanted workers, are unpopular with voters. “It’s a difficult task,” Sigmar Gabriel, the German economics minister, said of making economic reforms during a panel discussion. “Most governments that have gone through with it have lost the next elections. But there is no alternative.” Reporting was contributed by David Jolly from Frankfurt, Niki Kitsantonis from Athens, and Jenny Anderson, Peter Eavis and Alison Smale from Davos, Switzerland. A version of this article appears in print on January 23, 2015, on page B1 of the New York edition with the headline: Pressure to Lift Growth on Each Eurozone Nation. Order Reprints| Todays Paper|Subscribe
Posted on: Sat, 24 Jan 2015 00:11:18 +0000
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