Markets hungry for news on more ECB stimulus

Staff Writer
Columbus CEO

FRANKFURT, Germany (AP) — Financial markets are eagerly awaiting more word Thursday from the European Central Bank about possible stimulus measures to save the economic recovery.

Expectations for action have grown since ECB President Mario Draghi warned last month that the economy was at risk and said the bank was open to new, extraordinary measures such as large-scale bond purchases.

Analysts say it may be too early for the announcement of such measures at Thursday's meeting of the ECB governing council. Instead, Mario Draghi could use his post-meeting news conference to give more detail on how the ECB is preparing to take action. In fact, the ECB may wait several more months before deciding, the say.

Other economists, however, don't exclude some sort of action such as a trim in the benchmark refinancing rate, already at a record low of 0.15 percent, or steps to help credit.

Stocks and bonds have rallied since Aug. 22, when Draghi warned that inflation expectations were falling. Low inflation, currently at only 0.3 percent annually, is a sign of the economic weakness that is still plaguing the 18 countries that use the euro as they try to recover from a crisis over high debt.

The eurozone economy did not grow at all in the second quarter after four quarters of meager expansion. The top three economies stalled, with Germany and Italy shrinking by 0.2 percent and France at zero. That has raised fears the recovery might be over before it's really begun.

Draghi has held out the possibility of quantitative easing, or large-scale bond purchases that pump new money into the financial system and the economy. That in theory expands available credit so businesses and consumers can borrow, spend and invest.

Analysts Mujtaba Rahman and Federico Santi at the Eurasia Group say the ECB may be waiting in order to give governments time to join in efforts to stimulate growth. Draghi has said the ECB, which provided new stimulus measures just in June, cannot do it alone. He argues there is room for governments to spend more within EU rules limiting deficits. Draghi also wants individual countries to improve growth through politically difficult reforms such as easing rules on hiring and firing.

"The ECB wants to allow sufficient time for the measures it adopted in June to work, and for their impact to be assessed," Rahman and Santi wrote in a research note. "Draghi hopes this will create time and political space for member states to agree to some form of joint EU fiscal stimulus, as well as a more robust framework at EU level for overseeing and enforcing structural reforms. "

They noted that progress on labor-market reforms has been slow in two key economies, France and Italy. Germany, meanwhile, has been skeptical of plans to increase government spending or borrow money to spend on infrastructure such as roads, bridges and ports.