Mined from a statement given by ECB President Mario Draghi yesterday, the Euro Area’s main concerns against a positive growth outlook remain weak demand due in part to a high amount of nonperforming debt in the private sector and resulting weak demand. What’s more is that the difficulty with which these loans are repaid is having a halting effect on the growth of credit in the countries that have these issues, and it has become clear that any additional stimulus measures should be aimed at this problem. Further easing would be best designed with the goal of increased investment stemming from the solution of nonperforming loans. Though more a specter than an on-paper problem, any expanded measures should also arrive with the target of tackling negative sentiment and low confidence. A recent commitment to act should the European economy be slow to recover saw the euro gain overnight, though thus far action on the part of Draghi has been forthcoming in lieu of wordplay.
Trends in today’s marketplace including an extremely stubborn inflation metric, crashing oil prices and an already-installed asset purchase extension mean that Draghi’s word may soon be tested, as the need for expansion becomes more and more apparent. Though the Central Bank stands ready and willing behind him, he has outlined in speeches recently the need for fiscal policy intervention combined with monetary action, in pleas that spur constituent states to install helpful infrastructure and trim financial fat in order to fight inflation. The consumer price metric currently lies at 0.10%, a far cry from the Bank’s target of 2.00% and a mediocre result after a solid two years of being under 1.00% despite Draghi’s confidence that the statistic will right itself heading into 2016. The most important tactic employed by governments installing fiscal stimulus should be to coerce new and more investment in their respective economies, rather than needlessly cut off limbs, according to President Draghi.