World Economy

Draghi’s $1.3t Plan Finds Blockage in Spain

Draghi’s $1.3t Plan  Finds Blockage in SpainDraghi’s $1.3t Plan  Finds Blockage in Spain

Mario Draghi’s plan to channel as much as 1 trillion euros ($1.3 trillion) into the euro region’s economy is running into a blockage: some companies in the countries hardest hit by the debt crisis don’t want the money, Bloomberg reported.

“We’re getting calls from lenders every day,” said Miquel Fabre, 34, whose family-run beauty products firm Fama Fabre employs 43 people in Barcelona. “They can see that they’ll benefit from a loan because we’re doing good business and will return the money. Whether it’s in our interest as well is a different question.”

Many small and medium-sized businesses are wary of the offers from banks as European Central Bank President Draghi prepares to pump more cash into the financial system to boost prices and spur growth. The reticence in Spain suggests demand for credit may be as much of a problem as the supply. The monthly flow of new loans of as much as 1 million euros for as much as a year -- a type of credit typically used by small and medium-sized companies -- is still down by two-thirds in Spain from a 2007 peak, according to Bank of Spain data. The total stock of loans is almost 470 billion euros below the 2008 record of 1.87 trillion euros, the figures show. Spanish bonds rose for a third day yesterday, with 10-year yields dropping to 2.11 percent, after further evidence that Draghi may have to resort to buying government debt to get cash into the economy. The ECB’s latest attempt to funnel money through the financial system with a targeted-loans offer, known as TLTRO, was shunned by banks on Sept. 18.

Attracting Borrowers

That’s not to say banks aren’t making an effort to attract borrowers. Banco Popular Espanol SA, a Spanish lender that borrowed 2.85 billion euros from the TLTRO, started an advertising campaign this month using Spanish NBA basketball star Pau Gasol to target smaller companies.

In the first six months, Popular boosted lending to that group by 6 percent and is aiming for a 10 percent increase for all of 2014. Across the economy, small business loans at 12.9 billion euros in July were the highest in more than two years, while still just a third of the peak volume.

Weaker Euro

Draghi says a falling currency can’t buy much of an economic recovery. The euro has dropped toward a two-year low against the dollar since the European Central Bank president boosted stimulus earlier this month. Economics textbooks say that should lift Europe’s struggling growth rate by boosting exports and speed inflation by raising import prices. Such effects will be more welcome if falling commodities deal a disinflationary blow.

It’s time for those textbooks to be revised, according to economists at Societe Generale SA led by Michala Marcussen, who reckon a devaluation of the euro will not be as stimulatory as it once was and perhaps as much as the ECB is hoping.