The European Central Bank's latest interest rate cut isn't helping the economy as much as it should because of differences in businesses' borrowing costs across the eurozone.
The comments, by executive board member Jörg Asmussen, highlight the challenge the ECB faces as its weighs its next steps to support the eurozone economy amid the debt crisis in southern Europe. Central bank measures—such as interest-rate cuts, loans to banks and bond purchases—have the full effect that the ECB wants only if private sector borrowing costs are roughly comparable across the 17-member currency bloc. Instead, borrowing costs in crisis-hit southern euro countries are often substantially higher than in the bloc's north.
At this week's meeting, the ECB is expected to reveal details for a new government bond-purchase programme aimed at reducing short-term interest rates in southern Europe. Remarks by ECB President Mario Draghi to European lawmakers on Monday suggest the ECB is eyeing the purchase of government bonds with maturities of up to three years.
For some classes of borrower, including households, the ECB data suggest the divergence in the cost of credit is more limited. Average mortgage rates in Spain are on par with those in Germany, due in part to the fact that Spanish rates are linked more closely to official short-term interest rates.
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