The ECB's massive balance sheet expansion during the past year succeeded in generating growth in the euro area's broad money supply.
|ECB balance sheet (€mm)|
However the increase in money supply is yet to translate into material growth in credit. The two indicators have diverged.
Part of the problem of course is the issue of "monetary transmission" (discussed here). Liquidity and therefore credit growth is not getting to where it's needed most. The chart below shows growth in loan balances to non-financial corporations (NFCs - lending by banks to companies.) As expected the trends by country diverge dramatically. Increasing money supply simply saturates "core" banks with deposits - to the point where lending is no longer limited by available liquidity. But due in part to capital flight (see post), liquidity is not making its way to the "periphery" banks, limiting credit expansion. The periphery banks therefore hold back credit growth in the Eurozone.
It remains to be seen if the ECB's recent strategy of buying short-term periphery government debt has a material impact on liquidity in the periphery nations and therefore lending in the Eurozone as a whole.