WASHINGTON -- Moves made this week by the European Central Bank to raise dangerously low inflation and encourage lending were generally praised by economists.
The central bank's steps could also make exporters more competitive by reducing the euro's value and, thereby, making Europe's goods less expensive abroad.
But economists say Europe's economy won't return to health until it receives long-term fixes that the central bank can't provide on its own.
Its "actions will help, but only on the margin," said Mark Zandi, chief economist at Moody's Analytics. "This will be a very long road."
Zandi said banks across the continent must strengthen their own finances, possibly with taxpayer help, before they're healthy and confident enough to ramp up lending.
The U.S. Federal Reserve and other central banks long ago used up their traditional tool for fixing economies -- cutting short-term rates to near zero -- and then tried more untested measures.
The Fed, the Bank of Japan and the Bank of England have aggressively bought government bonds to try to push long-term rates lower and, thereby, encourage borrowing and spending -- a policy known as "quantitative easing" or QE.
The European Central Bank has balked at going that far. It balked again Thursday. But President Mario Draghi said it would prepare for a program to buy bonds made up of loans to small businesses. The idea would be to accelerate lending to small companies.
For the first time in its history, the central bank will start charging banks for depositing money. This step -- called a negative deposit rate -- is intended to nudge banks to lend rather than hoard cash.
Draghi pledged to do still more, raising hopes among investors that he will pursue a big Fed-style bond-buying program in the future.
"Are we finished?" he asked at a news conference. "The answer is no."
The eurozone clearly needs the help. Its economy grew just 0.2 percent the first three months of the year from the October-December quarter. Inflation is running at a perilously low 0.5 percent.
Excessively low inflation is unhealthy. It makes it harder for consumers, companies and countries to repay debt left over from the eurozone's financial crisis. And it raises fears of an outright drop in prices -- deflation. Deflation can kill economic activity and business profits by causing people to delay purchases in anticipation of even lower prices.
Draghi succeeded Thursday in reassuring investors that the central bank will act aggressively to sustain the eurozone's recovery and raise inflation. Analysts had feared a market sell-off if it had done something half-hearted. Instead, stocks rose in the United States and Europe.
But many analysts doubt that the benefits will endure.
"It's not going to make the slightest difference" in the long run, said David Kelly, chief market strategist at J.P. Morgan Funds.
European banks aren't lending much, but not because interest rates are too high. It's mainly because Europe's banks lack confidence. They fear that other banks across Europe are holding too many bad loans and that the European banking system is vulnerable to a repeat of the financial crisis of 2008-2009.
"If you're a bank in Italy, for example, you are probably OK with your own balance sheet," said Markus Schomer, chief economist at PineBridge Investments. "But you have no idea about banks in Spain. You have no idea about banks in Greece. If the Greek banking system blows up again, the entire European banking system will be punished for it."
The banks are undergoing "stress tests" to measure their financial resilience. The results are due this fall. Schomer is optimistic that most banks will perform well.
The tests "will show that essentially the banks are fine," Schomer predicts. "That will be the game-changer that unlocks lending."
Business on 06/07/2014