The European Central Bank (ECB) plan to lower the official interest rate from 0.15% to 0.05% will not work. What’s the difference between 0.05% and 0.15%? Nothing. There will be no increase in requests or approvals for loans resulting from this 0.1% cut.
In July 2012, after lowering the interest rates from 1% to 0.75%, Mario Draghi explained: “We are now seeing a weakening of growth in the whole of the euro area, including countries that had not experienced it before.”
And what happened after the 2012 rate cut? Nothing. Our economic situation still equates to a flat encephalogram. Why should it work this time?
The BCE vs. The Fed: United States is seeing growth, EU is not
The reality is that since the downturn of 2009, the U.S. economy has grown 2.2% annually (2010-13), which is quite good; Japan has grown 1.8%, after being considered a lost cause.
On the contrary, the European Union has seen negligible growth (0.8% per year), with the euro area even worse at 0.6%, which is virtually nothing at all. And the numbers for 2014 are even more dreary: 0% and falling. The patient is not dead, but remains convalescent and bedridden.
So what is the explanation for this? Some would cite the lack of “structural reforms,” a recent buzzword that I am not sure I even understand. In my opinion, there is a simple explanation: as in the United States and Japan, the government and the central bank have acted decisively in favor of the economy , while in Europe that is not the case.
The economy is guided by the private sphere and the public sphere. And there are only two institutions in the public sphere: the government and the central bank. If they do nothing or act too late, you’re hopeless and will be mired in recession for many years.
This patient (the EU) needs shock treatment
This is exactly what happens to a sick patient. You can let them recover on their own, with rest, simple food and whatnot; or you can give them heavy shock treatment if the situation is serious.
Without medication, the patient may recover, but will spend months confined to their bed, and even risk dying. It seems that both the European authorities and the ECB want each country’s economy to get better on its own; in their words, “correct the imbalances” (another popular expression that escapes me). It’s like the doctor giving the diagnosis but refusing to give the treatment and saying that it’s our fault we’re sick and that we must gradually get better ourselves (to boot, we paid for the visit).
Change the mission of the ECB, please
Some will say that the mission of the ECB is solely to ensure monetary stability (inflation control) and that economic growth does not fall within its obligations, as it does for the central banks of the United States, United Kingdom and Japan. So, it’s as simple as that, ladies and gentlemen of the European Parliament: Change the mission of the ECB . Easy as pie. No more excuses. The euro area has been struggling for years and that affects millions of people. European authorities need to wake up, or quit complaining about citizens’ dissent toward the European idea.