Central banks abandoned the practice of setting an annual money growth target a long time ago. This does not mean ignoring its evolution, considering that it is the aggregate most closely related to the nominal growth of the economy in the medium term. In the Eurozone, we refer to the money supply or M3, the concept of money that allows for the financing of spending on goods and services.
Every month, the European Central Bank (ECB) publishes the evolution of M3 and its counterparts. M3 includes bank deposits and other short-term public sector liabilities held by residents, households, and businesses. Its main counterpart is bank loans. The expansionary monetary measures carried out by the ECB have boosted M3 growth to levels of 8.9% annually in May, double the level considered desirable in the medium term under normal circumstances. Loans from European banks to the private sector are growing at rates of 6%, and 8% in the case of loans to companies.
Since the beginning of the crisis, the ECB has strived to provide ample levels of liquidity to financial markets and loans to banks so that they can channel them into the real economy. Bank financing for households and businesses is ensured by the high participation of European banks in the money auctions conducted by the European monetary authority. However, ensuring a stable flow of financing to the economy also involves strengthening banking stability. The solidity of entities is a necessary condition for this stability. The sufficient condition involves improving economic certainty and combating potential excesses in financial markets.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
