Monday

23rd Jan 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

EU should raise own taxes, says report

A group chaired by former Italian PM and EU commissioner Mario Monti says Brexit should be used to create EU-level levies to depend less on member states contributions, and to abolish member states rebates in the EU budget.

News in Brief

  1. Fury over UK 'cover up' of failed missile test
  2. Theresa May: I will not be afraid to stand up to Trump
  3. Brexit will destroy NI peace deal, says Gerry Adams
  4. EU housing price increase by 4.3%
  5. EU trade chief says UK deal will take 'couple of years'
  6. German defence spending boost not enough for Nato goal
  7. Belgian MPs refuse to give up free alcohol
  8. Merkel last leader to get call from Obama

Stakeholders' Highlights

  1. World VisionEU Urged to do Better Ahead of Helsinki Conference on Syria
  2. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  3. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  4. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  5. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  6. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  7. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  8. European Free AllianceMinority Rights and Autonomy are a European Normality
  9. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  10. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  11. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London
  12. PLATO15 Fully-Funded PhDs Across Europe on the Post-Crisis Legitimacy of the EU - Apply Now!

Latest News

  1. Future of euro on EU agenda This WEEK
  2. Pope warns populism could lead to 'saviours' like Hitler
  3. How the EU can protect the world’s forest by tackling corruption
  4. Leftist newcomer takes lead in French Socialist primary
  5. Far-right groups pledge allegiance ahead of elections
  6. Trump pledges US-first foreign policy
  7. GMO opt-out plan remains in waiting room
  8. Trump: New sheriff in town