Eurozone M3 money supply has accelerated to 3.2% in April from 2.6% but it does not let the ECB off the hook for further policy easing. M3 growth is still operating well below the ECB’s 4.5% growth target. The weak trend of Eurozone M3 money supply in the last few years tells us exactly why the Eurozone is stuck in recession. The Eurozone is suffering domestic credit contraction rather than the vital credit expansion that is absolutely vital life-blood for recovery. Lending growth is still stuck in negative territory at -0.9%. Consumers and the corporate sector are being starved of the cash needed to fund stronger economic activity. Consumers need access to more credit to support spending. Companies need access to easier credit to finance investment and growth. Neither are getting it. Without it, vibrant Eurozone recovery could be denied for years. The ECB has passed plenty of liquidity through to the banks in the last few years. The banks are simply not passing it through to the people who need it most.
The ECB can only go so far with policy in its conventional sense. Rates have come down to rock bottom and the Eurozone has supposedly been awash with liquidity. But it is not reaching the parts of the economy that really need it. There is still a strong case to extend conventional easing into other shapes and forms. Banks need to come under some strong duress to meet lending targets and there is probably a strong case now for extra measures, including quantitative easing. With Eurozone inflation and money supply growth both operating well below their specified official targets, the ECB has a very clear signal that monetary policy is still too far too tight and needs to be eased a lot further if Eurozone recovery has any chance of seeing the light of day before 2015.
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