Negative Interest

The ECB’s Bitter Medicine

DraghiVerzweifelt-Reuters
Mario Draghi's ECB is hurting banks and savers in the euro zone. That may be hurting the overall economy too.
  • Why it matters

    Why it matters

    The ECB may cut its negative deposit rate even further at its March 10 meeting, increasing the pressure on the financial sector and savers.

  • Facts

    Facts

    • The ECB’s quantitative easing policy, aimed at boosting inflation in the euro zone, hasn’t helped spark bank lending as hoped. Prices fell in February.
    • ECB policy, which aims to kick-start economic growth in the 19-nation zone, is hurting banks, insurers, investment funds, savers and small businesses.
    • The ECB’s Governing Council will next meet on March 10 and is expected to loosen monetary policy further.
  • Audio

    Audio

  • Pdf

Like most of the world’s central bankers, Mario Draghi’s job is clearly defined: The European Central Bank president must make sure that consumer prices in the 19-nation zone rise just under 2 percent each year over the medium term.

That’s not as easy at it may sound. The ECB has come up short for three years now. In February, euro zone consumer prices even fell by 0.2 percent from a year earlier, dragged down by falling energy prices.

Mr. Draghi’s miracle cure for low inflation – a €1.2-trillion, or $1.3-trillion, bond purchase program launched just over one year ago – also doesn’t appear to be working. The February price decline was bigger than at any time since the ECB started its quantitative easing plan last March.

The weak price gains have put Mr. Draghi under pressure ahead of the ECB’s next policy-setting meeting on March 10. The biggest problem is that he’s running out options to boost prices.

Not only that, but the actions he has taken seem to be hurting rather than benefitting key sectors of Europe’s economy.

Banks, savers, pensioners and insurers are suffering under the ECB’s desperate efforts to get financial firms to take bigger risks and lend money.

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