Surprisingly low take-up at last week’s first round of cheap four-year loans by the European Central Bank begs a number of questions – How low is demand for credit and what does that say about the state of the economy? Are banks cowed by the upcoming stress tests? Does this make an eventual leap to QE more likely?
The ECB is playing up the prospects of a second round in December after the stress tests are finished. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, it can’t have been happy to see only 83 billion euros of loans taken. ECB President Mario Draghi testifies at the European Parliament today.
After narrowly winning a confidence vote in the National Assembly in a manner that doesn’t exactly give him momentum, French Prime Minister Manuel Valls travels to Germany to compare notes on economic reform.
There, he is likely to ask Angela Merkel not to press for EU penalties after Paris admitted it would again break a promise to limit its budget deficit to 3 percent of GDP and would take a further two years to get there.
Draghi’s call in August for euro zone governments to do more to revive growth has widened the debate and could mean France will get leniency from its European Union partners on its deficit as long as it can prove it is serious about making its economy more competitive.