In its monthly report on lending, the central bank said Thursday that loans to companies, not including banks, in the 17-nation currency zone fell at an annual rate of 1.8 percent in November, the same rate of decline as in October.
That is a sign that measures by the bank have not yet succeeded in restoring the flow of credit to troubled countries like Spain. Credit is a prerequisite for economic growth, and the central bank closely watches data on lending in deciding the level of the official interest rate.
During the last year the central bank has gone to ever greater lengths to encourage lending. It has cut the benchmark interest rate to a record low of 0.75 percent and allowed banks effectively to borrow as much money as they want at that rate.
The central bank has also promised to buy the bonds of countries like Spain to hold down their borrowing costs, a policy intended to help businesses and consumers in the countries hardest hit by recession.
The interest rate that a government pays often acts as a floor on the market rates paid by the country’s companies and consumers.
But the central bank’s efforts have been thwarted by continued reluctance by banks, many of which are already burdened by bad loans and are trying to reduce risk. In some countries there may also be a lack of demand for loans, because corporate managers are not confident enough to resume investing in their businesses.
“Today’s euro zone bank lending figures are a timely reminder that the economic situation in the 17-country region remains very fragile,” Martin van Vliet, an analyst at ING Bank, wrote in a note to clients on Thursday.
Lending to euro zone households continued to register only weak growth, rising at an annual rate of 0.4 percent in November, the same rate as in October, the central bank said.
The latest data could reinforce expectations that the bank will cut the benchmark rate early this year, perhaps as soon as the monthly monetary policy meeting next Thursday.
But a rate cut would most likely face opposition from some members of the central bank’s governing council, including Jens Weidmann, president of the Bundesbank, the German central bank.
Mr. Weidmann and others might argue that lower rates would increase the risk of inflation, without doing much to encourage lending in the countries that need it most.
In interviews and other public statements, Mr. Weidmann has continued to warn about inflation even though most economists see little risk.
Inflation in the euro area fell to an annual rate of 2.2 percent in November from 2.5 percent in October, according to the most recent official figures. The central bank aims to keep inflation at about 2 percent.
The report on monetary conditions did contain some good news. Mr. van Vliet pointed out that bank deposits in Spain and Greece rose in November, a sign that people were no longer withdrawing money from those two countries.
“This confirms that fears of a (partial) euro zone breakup are gradually receding,” Mr. van Vliet wrote.
And while the German economy has slowed in recent months, unemployment numbers released Thursday suggested that it remained resilient. The unemployment rate rose to 6.7 percent from 6.5 percent, the German Federal Employment Agency said. Adjusting for seasonal fluctuations, however, the unemployment rate was unchanged at 6.9 percent. About 2.9 million people in Germany are jobless.
The stable German labor market, despite poor weather that would normally suppress hiring, is a sign that “most firms do not expect the currently weak economic environment to persist for much longer,” Thomas Harjes, an analyst at Barclays, wrote in a note.
According to the methodology used by the International Labor Organization, which uses a narrower definition of joblessness, Germany’s unemployment rate was only 5.3 percent.
A report by the Bank of England Thursday indicated that the British central bank is having better luck restoring credit to the economy than the European Central Bank. Lending to both businesses and consumers rose significantly, the Bank of England said in its quarterly credit conditions survey.
Britain is not a member of the euro zone, and the Bank of England undoubtedly faces a less complex task than the European Central Bank, which must try to fashion a monetary policy for 17 countries.
The Bank of England attributed the improvement to its Funding for Lending Scheme, which rewards banks that increase the amount of credit they provide. Banks that lend more can borrow more from the central bank at lower rates than banks that decrease lending.
“The Funding for Lending Scheme was widely cited as contributing towards the increase in secured and corporate credit availability,” the Bank of England said in a statement.
Article source: http://www.nytimes.com/2013/01/04/business/global/bank-lending-in-euro-zone-slumped-in-november-data-show.html?partner=rss&emc=rss