ECB launches small business lending scheme

Stimulation and growth are the key to the European Central Banks (ECB) plan for economic recovery as it launches its small and midsize business lending scheme. The ECB will begin buying up bad loans directly from banks in an effort to encourage banks to provide capital to growing businesses. 

In addition to this small business lending scheme, the ECB also announced a further reduction in interest rates, cutting the current lending rate from 0.15 percent to 0.05 percent, a move which led investors to initially sell-off the currency in foreign exchange trades.

Though he declined to state the precise cash value of the program, ECB president Mario Draghi did say it would have a “sizeable impact” on the ECB’s balance sheet and will “support the provision of credit to the broad economy.” Anonymous sources said the plan could cost up to €500 billion over the next three years, the Irish Times reported.

As Italy slumped into it's third recession since 2008, and France's economy stagnated in the second quarter of 2014, the ECB has found itself under great pressure to stimulate growth. Many other nations in the European Economic Area also showed little to no economic growth.

While many investors had hoped that Draghi would announce that the ECB would purchase government bonds, Friday's announcement showed that Draghi prefers to direct the ECB towards less conventional stimulus measures.

The ECB plan will begin by purchasing asset-backed securities and covered bonds, with more details expected to be released in October.