Newspaper article International New York Times

For E.C.B., a Day Comes to Look on Bright Side ; Central Bank Assessment of Euro Zone Fits Upbeat U.S. and Britain Reports

Newspaper article International New York Times

For E.C.B., a Day Comes to Look on Bright Side ; Central Bank Assessment of Euro Zone Fits Upbeat U.S. and Britain Reports

Article excerpt

The central bank chief's euro zone assessment fit with upbeat economic reports from the United States and Britain.

On a day when much of the world economy looked a bit brighter, even the European Central Bank on Thursday could offer a more optimistic view of the long cloudy euro zone.

The bank, saying growth was poised "to gain some traction" as record-low interest rates began to flow to businesses and consumers in the form of cheaper loans, made a slight upward revision to its forecast for 2014.

"All in all we're seeing positive developments," Mario Draghi, the president of the E.C.B., said at a news conference, after the central bank left its main interest rate unchanged at 0.25 percent.

While subdued and accompanied by caveats, Mr. Draghi's assessment fit with upbeat economic reports from the United States, where third- quarter growth was revised sharply upward, and from Britain, where the government also raised its growth forecasts.

At the same time, Mr. Draghi showed his preference for brandishing monetary policy weapons rather than firing them. He emphasized that there was still plenty the E.C.B. could do to stimulate growth or head off deflation, a destructive downward spiral of prices. But he announced no new measures Thursday and gave no indication that any were imminent.

That was disappointing to some who hoped the central bank would, for example, announce a program to encourage banks to do more lending.

"When it comes to providing effective support to Europe's real economy, the E.C.B. is all talk and no action," Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an email.

Implicitly anticipating such criticism, Mr. Draghi counseled patience. He said it took time for E.C.B. rate cuts -- the latest was a month ago -- to work their way into the economy. In fact, he said, there is evidence the cuts are having positive effects, as confidence in the euro zone slowly recovers and commercial banks find it easier to raise money that they can lend on to customers.

"It would be wrong to think that the effect of our monetary policy is instantaneous," Mr. Draghi said. "It needs time to fully produce its effects."

The E.C.B.'s in-house economists on Thursday lifted their forecast for growth next year to 1.1 percent, compared with the forecast in September of 1 percent. For 2013, the E.C.B. estimated that economic output in the 17 countries in the euro zone collectively shrank 0.4 percent.

By recent European standards, 1.1 percent would be a torrid economic expansion, and it was enough that the E.C.B. did not see a need to announce any new measures Thursday to stimulate the euro zone economy.

Mr. Draghi said the E.C.B. had considered a program similar to one used since last year by the Bank of England, which offers cheap cash to commercial banks on the condition that they lend the money to customers. …

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