Euro Area Money and Credit Policy: A Total Bust

Despite best efforts to boost growth inflation money and credit, the ECB's `whatever it takes' kitchen sink policies are not getting traction. The chart tells the story of hairsplitting (if any) progress in getting money or credit growth to improve.

Tabular data show a very mixed picture of money growth and credit trends. EMU money supply is a bit faster over three-months but still below its two-year pace of growth. Credit to residents is slower over three-months and slow in any event; all growth rates of one year or less are slower than their respective two-year pace and all are below 1% in any event - too slow to help.

Private credit at a 1.1% pace over three-months is about even with its six-month pace and up from 0.5% over 12-months but only level with its two-year pace.

However, when we look at real balance data (inflation adjusted growth rates), any notion of any progress goes out the window. Money growth has slowed in real terms and both credit measures are declining and shrinking faster than on earlier horizons. The negative rate policy in the EMU is not exciting any lending or money holding in excess of inflation. On this score, we have to count EMU monetary policy a total bust. Negative rates are having no positive impact anywhere.

We can compare money growth in the EMU with money growth in the U.K., the U.S. and Japan. In each of those domiciles, nominal money growth is faster over three-months than over 12-months as it is in the EMU. But real money growth is also either accelerating or is steady over three-months compared to 12-months. The U.K. and Japan show substantial pickups in the growth of real money balances. In the U.S., the growth rate is only steady. In all these cases, real and nominal money growth rates are stronger than their respective two-year growth rates unlike in the EMU. The U.K. and Japan are giving monetary stimulus a chance. The EMU simply isn't; it is just going through the motions.

All these counties have been hit by the same crazy topsy-turvy oil prices that are falling by about 12% over 12-months but rising at annualized a rates of from 50% to up to 100% over three or six months. Obviously, there is a lot relative price disturbance with oil prices so volatile on global markets. In addition, Europe has the new event of Brexit to contend with. The BOE has responded with more aggressive easing and a pledge to do more if needed while the ECB is having its usual hissy fit between the ECB and Germany as Germany thinks that everything is just fine and monetary policy should do no more while the ECB still sees risks in the global economy if not from Brexit.

One ongoing difference between monetary policy in the EMU and elsewhere is that EMU has constantly been engaging in stimulus with the brake lights on. Every time there is a new round of stimulus in the EMU, it is clear that the Germans have opposed it, delayed it, and are in favor of rolling it back as soon as possible. That sort of behavior tends to make monetary stimulus less potent. And that is exactly what Europe has gotten. Monetary policy in Europe has been a disaster from the slow and unsteady way in which it has repeatedly been implemented to its ultimate result. Hopes for the future cannot possibly be very high.