Sound bites: Eurozone recovery restrained by negative credit and too slow money supply growth

Eurozone recovery is being severely impeded by negative credit growth. If the ECB wants to release the Eurozone from its recession shackles it must free up a much better supply of credit to the Eurozone economy. The credit crunch is deepening. Bank loans to the Eurozone private sector are contracting at a faster pace, falling by 1.6% in June compared to -1.1% in May. This cannot sustain recovery in any credible shape or form. The detail looks deeply concerning. Bank loans to the corporate sector are contracting at a 3.2% annual pace, while consumer credit is shrinking by 3.6%. It is less a question of getting rates lower or providing extra market liquidity to get the recovery going. The ECB and Eurozone governments need to take a big stick to the banks to get lending going again. It is less a case of draconian bank capital requirements hampering lending, the banks just do not seem to want to lend full stop. The fact that Eurozone money supply has decelerated again to 2.3% in June from 2.9% in May shows the scale of the problem. The reference target rate for M3 money is supposed to be 4.5%, consistent with 2% inflation and 2.5% growth. The ECB is well adrift from that now. It needs to start pump priming very soon or else face disaster for recovery prospects in the beleaguered Eurozone economies