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WORLD NEWS Thursday 12 sepTember 2019

Europe eyes stimulus plan, but ultra-low rates raise doubts

By DAVID McHUGH ative in many European
MARTIN CRUTSINGER countries and Japan are
Associated Press a big reason that U.S. long-
FRANKFURT, Germany (AP) term rates are so low, as
— The European Central foreign investors search for
Bank appears to be prepar- better returns in the United
ing a new shot of stimulus to States.
try to energize the econo- As central banks are
my. But the move is sure stretched, the discussion
to renew a nagging ques- has turned to government
tion: Can central banks do spending policy as a way
much good when rates are to support growth.
already ultra-low? Draghi's designated suc-
Analysts say the bank is like- cessor, Christine Lagarde,
ly to cut a key interest rate said during her nomination
further below zero on Thurs- hearing last month that fis-
day and could take other cal policies "need to be
steps, including restarting available to stabilize our
a bond-buying program to economies through down-
pump newly created mon- turns and avoid overbur-
ey into the economy. dening monetary policies."
That could help the econ- She urged governments to
omy by making money make pro-business reforms
cheaper to borrow, a poli- Incoming President of the European Central Bank Christine Lagarde speaks to the European and spend on growth-
cy that U.S. President Don- Parliament's Economic and Monetary Affairs Committee in Brussels, Wednesday, Sept. 4, 2019. friendly investment where
ald Trump has repeatedly Associated Press possible.
pushed the U.S. Federal aimed at pushing banks across Europe below zero , European Union. Credit is "I'm not a fairy," she said,
Reserve to emulate . Yet to lend spare cash rather meaning governments get already cheap and abun- adding that "central banks
some officials question how than let it pile up overnight paid to borrow and inves- dant for governments and are not the only game in
much good another large at the central bank — sug- tors are willing to pay for companies with good town."
blast of stimulus will do. gests how stretched mon- a safe place to stash their credit ratings. Lagarde, who resigned as
The possible stimulus has etary policy has become in money. And low rates can have head of the International
raised uncertainty about the wake of the Great Re- The Fed is also moving in the side effects, such as erod- Monetary Fund effective
exactly how big a pack- cession. direction of more stimulus, ing bank profits and inflat- Friday after being nominat-
age might be decided at Beyond that, the ECB's gov- though Trump would like it ing the prices of riskier as- ed for the ECB presidency
the gathering of the ECB's erning council could ex- to cut rates faster and has sets such as stocks. by European governments,
25-member governing tend its current promise not praised the ECB's negative ECB governing council will take over from Draghi
council. It will be President to raise rates before mid- rates. The Fed cut its key member Klaas Knot, head on Nov. 1.
Mario Draghi's next-to-last 2020. policy rate in July for the of the Dutch central bank, Draghi has also urged gov-
meeting after an eight- And it could decide to re- first time in a decade, to a has said the economy isn't ernments that are in good
year term as head of the sume bond purchases that new range of 2% to 2.25%. weak enough to warrant financial shape to spend
monetary authority for the were stopped in Decem- Markets believe there is a bond purchases. Another more on projects that
19 countries that use the ber before economic data near certainty the Fed will member, Sabine Lauten- would help growth, but
euro. took a turn for the worse. cut rates for a second time schlaeger of Germany, has has largely been ignored.
Draghi gave clear hints in Florian Hense, an analyst at its next meeting Sept. 17- said she opposes re-starting Germany, the eurozone's
a June speech and after from Berenberg Bank, said 18. bond purchases. biggest member, contin-
the bank's last meeting, on the ECB could purchase Trump on Wednesday Private economists took ues to run budget surpluses
July 25, that more action 30 billion euros ($33 billion) tweeted about the ben- strong issue with Trump's despite urging from the IMF
was on the way to counter in government and corpo- efits in his view of negative contention that negative to spend more on infra-
the slowdown in economic rate bonds a month for at interest rates, calling the rates would be good for structure such as extending
growth, which has been least 12 months. U.S. Federal Reserve "Bone- the United States. high-speed internet to all
blamed in large part on the The bank purchased 2.6 tril- heads" for not pushing U.S. "Negative interest rates are areas of the country.
U.S.-China trade dispute. lion in bonds ($2.9 trillion) rates down to "ZERO or less." totally destructive to sav- The eurozone economy
Analysts think the ECB will over almost four years, a There are doubts, however, ings and investment," said grew a modest 0.2% in
at least cut the rate on step that drives up bond about how much monetary economist David Jones, the the second quarter while
deposits that it takes from prices and drives down in- policy can do. author of four books on the Germany shrank 0.1% and
commercial banks from a terest yields, since prices Among the big issues hurt- Federal Reserve. "Money could fall into a technical
current minus 0.4% to mi- and yields move in oppo- ing business confidence is flowing out of countries recession, defined as two
nus 0.5% or even minus site direction. Anticipation are political standoffs such that have negative rates." quarters of contraction, if
0.6%. The unusual negative of more purchases has driv- as the trade war and Brit- Jones said rates that are it drops again in the third
rate — in effect a penalty en government bond yields ain's uncertain exit from the near zero or actually neg- quarter.q