The risks of a Greek default and possible euro-zone exit rose further last week as its creditors made clear that a bailout disbursement was unlikely in the near term. Despite this, ECB President Mario Draghi was in a bullish mood at last week’s press conference, citing the strengthening economic recovery and early success of QE. Indeed, the ECB’s Bank Lending Survey, which was released last week, suggested that QE had already had a positive effect on credit conditions.
But we doubt that this will translate into a strong recovery in investment. While credit conditions have improved, banks remain less willing to lend than before the financial crisis. What’s more, demand for credit remains subdued and could weaken as the boost to spending from the weaker euro and lower oil prices fades. The QE programme should be implemented in full and may have to be extended.
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