Monday

23rd Oct 2017

IMF tells eurozone to turn on printing presses

  • "There is room for monetary policy in the euro area to ease further" (Photo: Tabbo107)

The euro crisis continues to weigh down the global economy, the International Monetary Fund said Monday (16 July), putting pressure on the European Central Bank to lower its interest rate even further and issue more cheap loans to the banks.

"There is room for monetary policy in the euro area to ease further. In addition, the ECB should ensure that its monetary support is transmitted effectively across the region and should continue to provide ample liquidity support to banks under sufficiently lenient conditions," the IMF said in its annual World Economic Outlook.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

The Washington-based finance outfit cut its global economic growth forecast to 3.9 percent from 4.1 percent in April, mainly due to the continued stress in the eurozone and weaker-than-expected economic activity in emerging countries.

"The utmost priority is to resolve the crisis in the euro area," the IMF said. Overall, the 17 euro countries will contract by 0.3 percent this year and return to a 0.7 percent growth rate next year, the IMF predicts.

The specific reference to the ECB is meant to increase pressure for the Frankfurt-based body to turn on the printing presses via cheap loans, low interest rates and "some form of quantitative easing", meaning direct or indirect bond purchasing aimed at lowering governments' borrowing costs.

The ECB last year bought some Italian and Spanish bonds on the so-called secondary markets where they are traded after being purchased from governments (primary markets). But so far, ECB chief Mario Draghi has ruled out a resumption of this programme.

"What we can expect at the moment is another interest rate cut in September and possibly a further easing of collateral rules for banks (when they seek ECB loans)," ING economist Carsten Brzeski told this website. He said it was not unusual for the IMF to come up with "provocative" ideas which stem from a different central bank culture. Unlike the US Federal Reserve, the ECB is prohibited from buying bonds directly from governments.

German delay

The IMF report praised euro-leaders for their "step in the right direction" at a 28 June summit where they agreed to create a single supervision for eurozone banks and to recapitalise troubled banks directly from the bailout funds, rather than going through governments' balance sheets.

But the German constitutional court has meanwhile announced it will wait until 12 September before ruling on the constitutionality of the new eurozone bailout fund, the European Stability Mechanism, and on the treaty on fiscal discipline signed by 25 EU states. The ESM should have come into being on 9 July, with senior politicians, including from Germany, having warned the court of the potential consequences of a delayed vote.

Delayed or insufficient policy action - a possible reference to the ESM stalemate - is the biggest risk to the global recovery and could further escalate the euro crisis, the IMF said.

“Simply put, the euro periphery countries have to succeed,” IMF chief economist Olivier Blanchard said when presenting the report.

Barroso condemns British "delight" at euro crisis

European Commission President Jose Barroso Tuesday launched an angry attack on British Conservative's in the European Parliament, accusing them of "taking delight" in the eurozone debt crisis.

Macron puts trade policy on summit table

France's president wants a "political discussion" on EU trade policies at Thursday's summit, amid domestic concerns over Canada and South America deals. But his colleagues are likely to avoid a lengthy debate.

Stakeholders' Highlights

  1. Mission of China to the EUPresident Xi Jinping Proposes Stronger Global Security Governance at Interpol Assembly
  2. European Friends of ArmeniaEU Engagement Could Contribute to Lasting Peace in Nagorno-Karabakh
  3. UNICEFViolence in Myanmar Driving 12,000 Rohingya Refugee Children Into Bangladesh Every Week
  4. European Jewish CongressBulgaria Applauded for Adopting the Working Definition of Antisemitism
  5. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  6. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  7. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  8. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  9. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  10. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  11. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  12. CECEE-Privacy Regulation – Hands off M2M Communication!