Mario Draghi, the president of the European Central Bank, was at the center of the global financial stage Thursday, as the world waited to hear what steps the ECB would be taking, if any, to improve the European economy. President Draghi, the man who promised to do “whatever it takes” to preserve the euro, didn’t disappoint as he laid out his aggressive plan to protect the region’s fragile economy.
The ECB’s big concern at the moment is persistently weak inflation, which was reported earlier in the week to be at 0.5 percent for the month of May.
If left unchecked, the low inflationary environment could turn into deflation, a self-feeding spiral that can depress consumer prices, wages and job creation and can be extremely difficult to reinflate.
As part of the plan, the ECB cut interest rates on up to 400 billion euros ($545 billion) in cheap loans available to banks as long as they lend more to small businesses. The length of loans would be for four years, which is longer than many had expected, and underscores the ECB’s current concerns.
The ECB also cut its main lending rate from 0.25 percent to 0.15 percent, meaning that banks from Spain and in other regions of the eurozone can borrow more cheaply from the central bank.