ECB’s Draghi’s Plan May Miss the Target

Mario Draghi’s plan to end the euro area’s lending drought risks missing the target.

While the European Central Bank president says a program to hand as much as 1 trillion euros ($1.4 trillion) to banks has built-in incentives to spur lending to the real economy, analysts from Barclays Plc to Commerzbank AG have doubts on how well it will work. In fact, the measure allows banks to borrow cheaply from the ECB even without increasing credit supply.

Draghi has identified weak lending as an obstacle to the euro area’s recovery and is committed to reversing a slump that has eroded more than 600 billion euros in loans to companies and households since 2009. The risk is that if the latest plan fails, the currency bloc slips closer to deflation and to the need for more radical action such as quantitative easing.

Bloomberg

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