Europe’s Economy Is Weakening, Drawing Central Bank Action - The New York Times

Europe’s Economy Is Weakening, Drawing Central Bank Action

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The European Central Bank, concerned about the sluggish eurozone economy, pushed back the date of its next increase in benchmark interest rates.CreditCreditDaniel Roland/Agence France-Presse — Getty Images

By Jack Ewing

March 7, 2019

Frankfurt — The European Central Bank on Thursday unexpectedly revived a stimulus measure intended to encourage lending, an abrupt policy reversal that signals the bank is worried about growth in the region.

The move was seen as a prescription for the European economy, which has been unexpectedly sluggish.

The bank also pushed back the date of its earliest possible increase in benchmark interest rates, saying there would be no change until 2020. That means that Mario Draghi, the president of the European Central Bank, will serve his full nine-year term without ever having overseen a rate increase. He leaves office at the end of October.

“The weakening in economic data points to a sizable moderation in the pace of the economic expansion that will extend into the current year,” Mr. Draghi said in a prepared statement before a news briefing on Thursday.

“This certainly goes further than most of us thought that the E.C.B. would,” Paul Diggle, senior economist at Aberdeen Standard Investments, said in an email. “It is about as far as the E.C.B. will go toward admitting that the European economy faces some serious headwinds in the months ahead.”

The central bank has been slowly winding down the measures it used to prevent collapse of the eurozone following the 2008 financial crisis. But on Thursday it reinstated one of them, a program that will allow commercial banks to borrow money from the central bank at zero interest, provided they lend the money to businesses or consumers.

The measure is designed to help banks in countries with weaker economies like Italy, which may have trouble raising money on capital markets at reasonable rates, creating a credit crunch.

The bank had previously said it would not raise its benchmark rate, which is zero, until September at the earliest.

The announcement provided a jolt to European stock markets. The major indexes, which had been lower for the day, briefly jumped into positive territory.