ECB unlikely to act on Thursday

New data compiled by the European Central Bank (ECB) have provided a glimmer of hope that the ongoing bond-buying program is finally having some effect. The ECB's latest quarterly bank lending survey showed commercial banks were increasingly vying for customers by easing credit standards for loans to enterprises in the eurozone.

In the quarter from July to September, "net demand for loans to enterprises increased," the ECB said.

"Net demand for housing loans continued to increase due to the low level of interest rates and the housing market prospects," the bank added.

With interest rates hovering near zero, the ECB in March decided to spend 60 billion euros ($68 billion) on bonds every month, in a bid to make more money available for jump-starting the sluggish economy. Scheduled to run until September next year, the quantitative easing (QE) program has a total volume of 1.1 trillion euros.

No impact?

But despite this flood of money, inflation in the eurozone has remained well below the ECB's target of just below 2 percent. In September, consumer prices even dropped by 0.1 percent. Likewise, gross domestic product (GDP) has remained low, and the ECB lowered its growth forecasts for the eurozone to 1.4 percent this year.

Given the meager results, central bank watchers have been expecting the ECB to expand its ultra-loose monetary policy. ECB boss Mario Draghi himself has said the "size, composition and duration" of the program could be adjusted, if necessary. But given the increased lending activity by commercial banks, the ECB's Governing Council is unlikely to make that decision in its meeting on October 22.

The QE program was "well calibrated" and did not need to be adjusted, Governing Council member Christian Noyer said.

"They're trying to back the market away from thinking there's going to be another easing announcement", a senior trader at an international bank in London was quoted as saying in a Reuters report.

Fuzzy answers

But a loosening of credit standards by commercial banks is in itself not a sign of economic recovery.

"If you ask the central bankers how quantitative easing actually gets through to the real economy, you get some pretty fuzzy answers, and it's not clear that it really does" said Lord Adair Turner in a presentation at the Global Economic Symposium in Kiel, Germany.

"And ironically, it will ultimately only work if it restimulates the growth of private credit - which got us into this mess in the first place."

Turner headed the Financial Services Authority, Britain's main banking regulator, from 2008 to 2013. After that, he joined the Institute for New Economic Thinking, a non-profit think tank based in New York.

In his new book called "Between Debt and the Devil. Money, Credit, and Fixing Global Finance," Turner argues there is a huge overhang of private and public debt, burdening advanced economies and slowing recovery.

"Seven years after the crisis, GDP per capita in the eurozone is still below the pre-crisis peak. in the UK, it's only just above. In the US, it is above, but 10-15 percent below of where it would have been on the pre-crisis trend."

QE programs by central banks, Turner argues, do little to increase investment in new ventures, but instead drive up the price of existing assets, mostly real estate. "Quantitative easing has been good for the rich, and ultra-easy monetary policy thus exacerbates the inequality," he writes.

The devil's way out?

Is there a way out of this dilemma? There is, Turner believes, but it involves breaking a taboo: "I suggest there are some circumstances in which central banks should print money, give it to the government and fund fiscal deficits."

Turner does acknowledge the political danger "that having tasted that medicine, it will appear so sweet and so costless that we will use it in excess", and points to examples like Simbabwe or Germany's Weimar Republic, which drowned in hyper-inflation.

But he is convinced that printing money can be calibrated to just the right amount, and then stopped. And he said the most famous argument that money printing can be justified in some circumstances "was not made by some mad, out of control, inflation-loving Socialist" - but by conservative economist Milton Friedman.

While money printing is already difficult to get right in countries with one government and one central bank, it becomes virtually impossible in the eurozone.

"We simple don't have the degree of trust between the different countries to be able to use a tool that is much easier to use in a single polity with one fiscal authority and one monetary authority."

Unless they achieve greater political integration, Turner argues, Europeans are heading for a situation that is worse than Japan's, which has been suffering from stagnation and deflation for almost 20 years now.

"With Europe's growth year after year as slow as Japan's, with our immigration flows, without our imperfect ability to make sure our ethnic minorities are integrated, with our high levels of youth unemployment - I think we are playing with fire."