ECB Joins Eurogroup and European Council to Secure Eurozone Recovery

Last Friday, European leaders agreed on new steps to fight youth unemployment and promote lending to SMEs. More precisely, officials agreed to deploy €8 billion (up from €6 billion) to create jobs for young people and approved plans for the European Investment Bank to lend €150 billion to small and medium-sized enterprises (SMEs) particularly in southern EU states over 2013-2015.

 

These decisions came as several indicators suggest that Eurozone growth could stabilize in Q2. Indeed, last Friday, consumption figures for the month of May were above expectations in Germany which represents 27% of the Eurozone economy. In the meantime, Bundesbank said in its June monthly report:

 

“After a weak start to the year, real gross domestic product should grow strongly in the second quarter of 2013″ 

 

Positive signals were also recorded in France (20% of Eurozone economy). The main driver of GDP, domestic consumption (56.3% of GDP), increased in May.

 

Finally, peripheral economies such as Spain or Portugal and also leaders like Germany benefited from a rebound of exports mainly because of a drop in euro in Q2. In these conditions, in order to push euro and rates lower, ECB decided to give a forward guidance, more precisely, ECB said it would keep its benchmark interest rate the same or lower “for an extended period of time”.

 

More from FT:

 

The euro hit its weakest level since May after the European Central Bank said it expected interest rates to remain at or below their current levels for an extended period of time.
 
Mr Draghi said the decision to give forward guidance on interest rates, which was taken unanimously by the ECB governing council, was “a very significant step forward” for the central bank.