Sound bites: Eurozone money supply data a clarion call for ECB to ease

Weak monetary dynamics remain the most convincing reason why the ECB must ease credit policy again very soon. Next week’s ECB meeting should be High Noon for a rate cut and more liquidity injection into the Eurozone financial system. Eurozone M3 money supply growth at 0.8% is far too tepid to support faster recovery. Eurozone domestic credit contraction running at -1.8% is a major obstruction to support any real recovery in consumer demand and corporate business expansion. Consumer credit contracting by -2% annually and corporate borrowing falling by -3% highlight major faultlines in the ECB’s recovery strategy. Balance sheet constraints on Eurozone banks ability to lend compound the problem. Weak borrowing demand, restricted credit supply and a low level of economic confidence all add up to a blighted recovery outlook ahead. The ECB can change things very quickly by pushing official interest rates into negative territory, forcing the reluctant banks to lend again. It can also open the door to real quantitative easing, flooding the economy with extra liquidity and weakening the euro at the same time. Although German exporters may not need it, hard-pressed exporters elsewhere in the Eurozone would certainly enjoy the added impetus to competitiveness.