New central bank stimulus launched for eurozone

FRANKFURT, Germany (AP) — The European Central Bank has launched a new stimulus program aimed at getting banks to lend more — but low demand for its super-cheap money shows the difficulty it faces in trying to revive a stalling economy.

The central bank for the 18-country eurozone on Thursday handed out 82.6 billion euros ($107 billion) in ultra-low interest loans to 255 banks.

Demand undershot even the low end of expectations. Analyst estimates had varied, from around 100 billion euros to over 200 billion euros.

The idea is to have banks use the easy money as an incentive to lend more to companies. Banks pay only 0.15 percent annual interest for up to four years for the loans. The amount they can borrow is tied to how much they loan to companies. That is intended to make sure the stimulus money gets into the economy and creates jobs; banks have used previous such offerings to load up on government bonds instead.

The low uptake underlined the ECB's difficulty in getting its stimulus measure through to the larger economy. Many economists think the impact of the cheap loans — dubbed targeted longer-term refinancing operations, or TLTROs, pronounced "TELL-troes" — will have limited impact because companies see no reason to risk borrowing in such a slack economy.

Thursday's offering of the cheap loans is the first of eight in a program unveiled on June 4. Together with further stimulus measures announced Sept. 4, they are part of a broader ECB effort to expand the amount of credit available in the economy.

Slack growth and low inflation of only 0.4 percent have raised fears that the eurozone's recovery from a crisis over high government debt is stalling. The eurozone economy showed no growth at all in the second quarter, after four quarters of unsatisfying growth, while unemployment is at 11.5 percent. Economists expect growth to resume, but weakly.

Under the latest measures unveiled Sept. 4, the ECB plans to purchase bonds based on bank loans to companies — a step that in theory encourages the banks to make more such loans, which can be bundled as bonds and sold off.

ECB President Mario Draghi hopes the bond purchases together with the TLTROs will add 1 trillion euros to the total amount of stimulus. The bank's balance sheet — a measure of the total size of its efforts to add money and credit to the economy — has been slowly shrinking as banks repaid earlier rounds of cheap loans. Those repayments mean the ECB is in fact offering less monetary support at a time when the recovery is far from certain.

Weak use of the TLTROs would make it harder to achieve the level of stimulus the ECB wants. That could increase the likelihood of even more drastic steps such as the purchase of large amounts of government bonds, so-called quantitative easing, or QE. QE purchases would pump large amounts of newly created money into the financial system in an attempt to lift inflation and growth.