Draghi's Monetary Nightmare Refuses To End As European Private Lending Remains Stuck At Record Low Levels

With just released inflation figures out of Germany coming weaker than expected, Mario Draghi's monetary nightmare - how to spur credit creation in Europe to the private sector - just got even worse. Incidentally the topic of Draghi's "Monetary Nightmare" is well-known to regular readers and has been covered here extensively in the past, most recently here. So while we await to see how the ongoing deflation in Europe, soon hitting its core too, spreads through the system, the most recent data out of Europe is that lending to non-financial corporations declined once again in January, this time by €11.7billion, adjusted for securitizations and sales. On an annual basis, the decline in January was -2.0%, the same as December, and worse than the -1.8% in November as reported by the ECB.

The long-term chart is an absolute disaster.

Here is what SocGen has to say about it:

Money supply growth (M3) in the euro accelerated in January, from 1.0% to 1.2% yoy, still well below the ECB’s 4.5% reference target. The flow of credit to the private sector seems to have troughed, as it dropped by 2.0% yoy (adjusted for securitization and sales), unchanged from December. The release of today’s figures is not likely to affect the outcome of the March 6 ECB meeting, at which we do not expect fresh action. In fact, the latest soft and hard data published suggest that the ECB’s  scenario of a gradual recovery (1.1% GDP growth in 2014) is taking shape.


The flow of credit to the private sector (adjusted for securitization and sales) stopped decreasing in January, after a cumulative €45bn fall during the previous two months. The growth rate stood at -2.0% yoy, unchanged from December. Although credit flows seem to have reached a bottom, it is hard to distinguish a material improvement here.

Indeed it is, and it also means that Draghi continues to be in a no way out, since credit destruction is not bad enough to prompt much more easing, or certainly QE, and is not nearly good enough to stimulate any economic growth except net of GDP definition revisions.

Here is the breakdown by country on a three year basis:

And the Y/Y change in outstanding levels: