Another drop in lending to companies in the 17-country euro zone showed the economic downturn is deepening.
It appears that the brighter mood on financial markets is failing to catch on with businesses.
The European Central Bank said today that loans to non-bank businesses shrank 1.4% year on year in September, double the 0.7% contraction reported the month before.
The numbers show the economy is struggling despite ECB efforts to stimulate credit and calm markets fearful that the euro zone may break up
The ECB has cut its main interest rate to a record low 0.75% and made €1 trillion in cheap loans available to banks that do not have to be paid back for three years. Even so, that easy money is not making it from banks to businesses and consumers, largely because demand for credit remains weak.
Businesses see no reason to borrow to invest in expanding production.
Meanwhile, banks in some countries have less to lend because they are struggling to recover from losses on property estate loans that did not get paid back and on government bonds that have fallen in value due to fears about those governments' finances.
The euro zone economy shrank 0.2% in the second quarter after zero growth in the first quarter, and the outlook for the rest of the year remains poor.
A drop in output in the third-quarter - for which numbers are due on November 15 - would put the euro zone in a technical recession, defined as two consecutive quarters of contraction. The euro zone crisis over governments with too much debt is increasingly about lagging growth and less about financial panic.
European Central Bank steadied financial markets with its announcement on September 6 that it was willing to buy unlimited amounts of government bonds issued by indebted countries, if those countries ask for help and agree to take steps to reduce their debt levels.
Such bond purchases would lower the borrowing costs those countries face in bond markets and give them breathing space to sort out their finances. Stocks, bonds and the euro have rallied since the ECB unveiled its plans.
Yet the better mood has not passed on to business executives. Growth is the quickest way to reduce debt, because it increases government tax revenue and shrinks the size of the debt relative to the economy.
In a more upbeat sign for Europe, bank deposits have been recovering in Greece and Spain, suggesting easing fears of an imminent break-up of the euro zone.
Depositors and investors became more willing during the financial crisis to pull money out of banks in troubled euro zone countries due to fears the governments might default on their debts and cause a worse crisis, or that the country might leave the euro zone altogether. A reversal of those flows shows increasing confidence.
