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Westlake Legal Group > European Central Bank

E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

FRANKFURT — The European Central Bank took unexpectedly aggressive steps on Thursday to head off a downturn before it gained momentum, but the bank signaled that it was reaching the limits of what it could do to stimulate the eurozone economy.

The central bank cut a key interest rate and revived a money-printing program, but later issued an unusually strong call for eurozone governments to do more of the economic heavy lifting.

Those countries that can afford it should stimulate growth by increasing public spending, Mario Draghi, the central bank president, said during a news conference.

Asked whether the message to political leaders was that they can’t expect the central bank to come to their rescue forever, Mr. Draghi answered: “Definitely yes.”

Mr. Draghi’s call for government action, which he said had the unanimous support of the bank’s 25-member Governing Council, was also an expression of unity with his soon-to-be-successor, Christine Lagarde. Ms. Lagarde, who will become the European Central Bank’s president in November, issued a similar plea when she spoke to members of the European Parliament last week.

For much of the last decade, the European Central Bank has prevented the eurozone economy from collapsing with an array of sometimes unprecedented crisis measures. But economic growth has almost stalled, and there is a growing consensus among analysts that wealthier countries like Germany or the Netherlands need to pump money into their economies, and by extension the rest of the eurozone, with tax cuts or public works projects.

Central banks are “not the only game in town,” Ms. Lagarde said at the European Parliament last week.

Read more: Central banks around the world are cutting rates to fend off recession.

The measures that the European Central Bank announced Thursday go beyond what many analysts were expecting. Recent comments by members of the Governing Council had cast doubt on whether the bank would restart purchases of government and corporate bonds. It has been only nine months since the bank ended a previous bond-buying program, an initiative that started in the midst of the financial crisis.

The bank will buy 20 billion euros’ worth of bonds, or $22 billion, every month starting in November, a form of money printing intended to inject money into the system and hold down interest rates.

In a bid to increase lending, the bank also pushed even lower the so-called negative interest rate it imposes on commercial banks that hoard cash.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a negative rate — essentially, a charge — on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent. It was the first cut in interest rates since 2016.

The deposit rate is one of the few remaining levers the bank can use to push down market interest rates. Its benchmark interest rate, the rate at which it lends to banks, is already at zero and cannot go any lower.

The move was symptomatic of the upside-down world of modern finance, in which interest rates are so low that insurance companies and other investors must pay governments and even some corporations to keep their money safe.

The central bank acknowledged Thursday that negative interest rates have some unwanted side effects and took steps to ease the pain. Some bank holdings will be exempt from the penalty, a practice known as tiering.

Despite Mr. Draghi’s plea for governments to do more, the idea of debt-financed spending, even on such favorable terms, is politically touchy in Germany. Germans are proud of their balanced budgets, and a constitutional amendment effectively forbids deficit spending.

ImageWestlake Legal Group merlin_160661526_6442e930-0759-41b6-83cb-6ca02a20d88d-articleLarge E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

Mario Draghi, the European Central Bank president, at a news conference after the meeting of the Governing Council in Frankfurt on Thursday.CreditRalph Orlowski/Reuters

With Germany on the brink of recession, weighed down by slumping exports caused by the United States-China trade war, some domestic leaders have begun to question that orthodoxy. “We should think about whether a break-even budget is the right path,” Wolfgang Tiefensee, economics minister of the state of Thuringia, said in an interview last month.

“We should use increased tax receipts to invest in infrastructure — bridges, streets, railways, broadband,” he said, “everywhere there is an urgent need to catch up.”

“Many people share this view,” Mr. Tiefensee added, “but not yet a majority.”

The European Central Bank also exceeded expectations by making an open-ended commitment to keep interest rates low, and sweetening a program that encourages banks to lend money to consumers and businesses.

The bank said it would not begin raising interest rates “until it has seen the inflation outlook robustly converge to a level” below but close to 2 percent, the official target. The annual rate of inflation in August was only half that much. The open-ended commitment was in contrast to previous statements when the bank outlined a specific time frame.

Further, the bank said it would ease the terms of a program that allows banks to borrow money on favorable terms, provided they lend it to customers. The loans will be extended to three years from two, and for banks that meet certain benchmarks the interest rate will be negative. In other words, banks won’t pay any interest and won’t have to repay all of the money they borrowed.

President Trump, who has been pressing the Federal Reserve to cut its benchmark rate, responded to Thursday’s move by needling his own central bank. The European bank, he said, is “trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting U.S. exports … And the Fed sits, and sits, and sits.”

President Trump wants negative interest rates. Here’s how that would work.

The euro slipped against the dollar on Thursday, but Mr. Draghi rejected the idea that currency manipulation was behind the bank’s action.

“We have a mandate, we pursue price stability, and we don’t target exchange rates, period,” he said.

Some prominent economists say that it’s time for the European Central Bank to get more creative. The bank’s balance sheet already includes €2.6 trillion, or about $2.9 trillion, in government and corporate bonds. They were bought with newly created euros to inject money into the financial system and push down interest rates.

Analysts say that the bank has limited scope to buy more government bonds because it already owns such a big chunk of the market.

“As I see it, he has only about €60 billion of sovereigns he can buy,” Carl Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y., said in an email. “That does not support sovereign bond purchases lasting for very long.”

Some economists have begun urging the bank to consider printing money and distributing it directly to citizens.

Among them is Stanley Fischer, former vice chairman of the Fed and Mr. Draghi’s thesis adviser when he was a doctoral student at M.I.T. Mr. Fischer was among the authors of a report published last month by the fund manager BlackRock.

“An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough,” the report said.

“That response will likely involve ‘going direct,’” the report said. “Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be highly contentious. “Giving money to people in whatever form, it’s a fiscal policy task,” Mr. Draghi said Thursday. “It’s not a monetary policy task.”

He added, though, that Ms. Lagarde might reconsider the issue.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero

Westlake Legal Group 11DC-TRUMPFED-facebookJumbo Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero United States Politics and Government United States Economy Trump, Donald J Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Europe Banking and Financial Institutions

WASHINGTON — President Trump urged the Federal Reserve to cut interest rates below zero, suggesting a last-ditch monetary policy tactic tested abroad but never in America.

His comments came just one day before European policymakers are widely expected to cut a key rate further into negative territory.

In a series of tweets, Mr. Trump said that “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt,” adding that “the USA should always be paying the the lowest rate.”

Mr. Trump continued to criticize his handpicked Fed chair, Jerome H. Powell, saying “it is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

He concluded by calling Mr. Powell, whom he nominated to head the central bank in 2017, and his colleagues “Boneheads.”

Mr. Trump’s request is extraordinary for several reasons. The United States economy is still growing solidly and consumers are spending strongly, making this an unusual time to push for monetary accommodation, particularly negative rates, a policy that the Fed debated but passed up even in the depths of the Great Recession. It is also typical for countries with comparatively strong economies to pay higher interest rates, not the “lowest” ones.

Negative rates, which have been used in economies including Japan, Switzerland and the Eurozone, mean that savers are penalized and borrowers rewarded: Their goal is to reduce borrowing costs for households and companies to encourage spending. But they come at a cost, curbing bank profitability.

While it’s unclear how effective they have been as a policy tool — some research suggests negative rates could curtail lending — they are increasingly a reality in much of the world as central banks rush to support economic growth and investors look for safe assets.

The timing of Mr. Trump’s tweet is also significant. The European Central Bank is expected to cut a key interest rate to a record-low negative 0.5 percent and roll out additional stimulus measures at its meeting on Thursday, in a bid to shore up very-low inflation and waning growth in important economies like Germany. Central banks around the world have been lowering their policy rates, partly because Mr. Trump’s trade war is combining with Brexit jitters and a global manufacturing slowdown to threaten growth in many nations.

The American president has commented on foreign central bank rate moves before, tweeting in June that “they have been getting away with this for years,” when Mario Draghi, who heads the European Central Bank, indicated that officials might provide additional stimulus to shore up the eurozone economy.

The Fed itself has already cut rates for the first time in more than a decade in July and is poised to lower borrowing costs further as risks to economic growth loom. Mr. Powell and his colleagues lowered interest rates to a range of 2 percent to 2.25 percent at their July meeting, and they are widely expected to cut by another quarter of a percentage point at their meeting next Tuesday and Wednesday in Washington.

“The Fed has, through the course of the year, seen fit to lower the expected path of interest rates,” Mr. Powell said in a speech last week, adding “that’s one of the reasons why the outlook is still a favorable one, despite these crosswinds we’ve been facing.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys

Westlake Legal Group merlin_159536490_d83e364e-a558-4428-a619-86b4975648e6-facebookJumbo Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Economic Conditions and Trends Draghi, Mario Banking and Financial Institutions

JACKSON, Wyo. — As top economists from around the globe gather for their annual conference at Jackson Hole this week, they will have a collective hope in mind: that the world’s political leaders will work to help safeguard economic growth.

Economies from the United States to the European Union to China are slowing, presenting a challenge for central bankers, whose tools are limited at a time when interest rates remain historically low in much of the world.

In the United States and Britain, central bankers are hoping that trade uncertainty and political strife will not kill long economic expansions. And from Australia to Europe, economic policymakers have been urging politicians to step up their spending, hoping that a hand from the government will spur consumption and keep their economies from tipping into recession.

But there is a vast divide between technocrats trying to salvage waning global growth and politicians with an eye on their voting bases.

President Trump is locked in a trade war with China, with the latest round of tariffs scheduled to take hold on Sept. 1, and he shows no intention of backing down. American tariffs on European automobiles remain a possibility. Britain is negotiating its exit from the European Union and the likelihood of a no-deal departure, which could be economically punishing for the country and its major trading partners, has escalated with Boris Johnson’s ascendance to prime minister.

Complicating matters is Mr. Trump’s view that what is good economically for other countries is bad for the United States — a position that has led him to criticize efforts by central banks to keep their expansions on track. On Thursday, he once again needled the Federal Reserve Board over Germany’s low interest rates, suggesting that negative interest rates on German bonds were putting the United States at a disadvantage.

“Germany sells 30 year bonds offering negative yields,” Mr. Trump wrote on Twitter. “Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition. Strong Dollar, No Inflation! They move like quicksand. Fight or go home!”

Global political brinkmanship is adding to uncertainty just as factories around the world slow production and businesses hold off on investment, stoking fears of a more concerted slowdown.

“Important countries are not in good shape,” said Roberto Perli, head of global monetary policy research at Cornerstone Macro, who said there was a risk of a significant and protracted global slowdown with the potential for outright recessions in some nations, like Germany. “It started for largely cyclical reasons, but since then, other factors have intervened — trade, most importantly.”

While central bankers strive to be politically independent and avoid giving elected leaders advice, they have acknowledged that government policies are threatening growth.

The Fed cut interest rates for the first time since the Great Recession in July, a move driven in part by Mr. Trump’s trade policies and partly by the broader slowdown in global growth. Jerome H. Powell, chair of the Federal Reserve, speaks on Friday and is expected suggest that additional rate cuts are on the table without signaling how many or giving a specific timeline. Tariffs — and their likely escalation — are keeping the Fed and its global counterparts on edge.

“We’re in a period when the center of gravity, the fulcrum, of U.S. economic policy is probably away from monetary policy and more in the area of trade policy, immigration policy” and other political areas, said Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview at the Jackson Lake Lodge.

Mr. Kaplan said that it is “prudent to take more time” before deciding whether or not the Fed should cut rates again in September. He does not vote on monetary policy this year, but has a seat at the table where rate decisions are made.

Asked if he expect additional rate cuts this year, he said that he is “open-minded that we may need to make further adjustments to the fed funds rate beyond what we did in July.”

But central bankers have begun warning that their ability to defend their economies is limited, especially because many never managed to sustainably lift interest rates back from rock bottom after cutting them during and after the global financial crisis.

Many are looking to their political leaders — who will gather in Biarritz, France, for the Group of 7 meeting this weekend — to help keep the world’s prosperity going.

“Policymakers around the world pulled the easiest lever, which is the monetary lever,” Mr. Perli said. “The more a central bank eases, the less powerful monetary policy becomes. We are at the point where, if we want to accomplish something — especially in countries like Europe — the ball is in the fiscal policy territory.”

But “that’s complicated,” he said, “by budget constraints in some countries and political constraints in other countries.”

While consumer spending is holding up in the United States and growth remains decent, manufacturing is slowing and consumer confidence sank in August. Businesses reported holding off on investment as they waited to see how the trade war plays out.

Mr. Trump has also begun mulling more tax cuts to lift the United States economy, though on Wednesday he insisted that it did not need one right now. And the Fed has room to cut rates, should a recession hit. The challenge is primarily one of intense policy uncertainty.

Europe, by contrast, has negative interest rates and a fraught economic backdrop — and while that owes more to fundamentals and global spillovers than domestic politics, growth is getting little help from national governments. In Germany, where China’s slowdown is hurting the manufacturing sector and the economy contracted in the second quarter, the government has been slow to spend more aggressively. Italy is also struggling, but it already has a heavy debt load, limiting its room to maneuver.

The European Central Bank, which runs monetary policy for 19 European countries, is expected to cut interest rates deeper into negative territory and even consider asset purchases in a bid to protect growth — but it is low on ammunition.

“Monetary policy has done a lot to support the euro area and continues, as you can see today, to do a lot,” Mario Draghi, the outgoing head of the central bank, said at a news conference last month. “But if we continue with this deteriorating outlook, fiscal policy will become of the essence.”

German politicians do seem to be cracking open the door to more spending, with Finance Minister Olaf Scholz indicating that the government could make up to $55 billion available. For scope, that is equivalent to a little more than 1 percent of Germany’s economy. The United States’ crisis-era spending package amounted to more than 5 percent of its 2009 gross domestic product, albeit with spending that was spread out over several years.

“This is the best available countercyclical tool in Europe,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, wrote in a research note. But he cautioned against expecting too much. “Politics will slow and could jeopardize the move to fiscal stimulus in Germany.”

Mr. Draghi will not make an appearance at the Wyoming meeting this year, though other European Central Bank leaders will be in attendance.

Like Mr. Powell, Mark Carney, governor of the Bank of England, is paying attention to politically created risks. He warned in a recent BBC interview that a no-deal Brexit would create an “instant” shock. The bank had been setting up for potential rate increases, but investors increasingly expect cuts instead as global growth wanes and trade tensions loom large.

In Australia, the central bank has cut rates to record-low levels as the economy weakens and threats to the nation’s 28-year-old expansion loom large. The threats include precarious household consumption, the broader slowdown in Asia.

Politicians in the nation have passed a tax cut and engaged in infrastructure spending, but they are nevertheless headed for what may be their first budget surplus in more than a decade, underlining the limits to that support. Philip Lowe, the head of the Australian central bank, who speaks on Saturday in Jackson, suggested this month that it would be economically helpful if politicians raised unemployment benefit spending, Bloomberg reported — a policy change that the sitting government opposes.

Economic action might be needed sooner rather than later: Recession signals have been flashing in American bond markets, Japan and South Korea are engaging in their own trade war, and consumer and business confidence have taken a hit in many parts of the world. While recession far from guaranteed, it is looking increasingly likely across a number of economies, including the United States.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Federal Reserve and Other Central Banks Constrained by Politics

Westlake Legal Group merlin_159536490_d83e364e-a558-4428-a619-86b4975648e6-facebookJumbo Federal Reserve and Other Central Banks Constrained by Politics United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Economic Conditions and Trends Draghi, Mario Banking and Financial Institutions

JACKSON, Wyo. — As top economists from around the globe gather for their annual conference at Jackson Hole this week, they will have a collective hope in mind: that the world’s political leaders will work to help safeguard economic growth.

Economies from the United States to the European Union to China are slowing, presenting a challenge for central bankers, whose tools are limited at a time when interest rates remain historically low in much of the world.

In the United States and Britain, central bankers are hoping that trade uncertainty and political strife will not kill long economic expansions. And from Australia to Europe, economic policymakers have been urging politicians to step up their spending, hoping that a hand from the government will spur consumption and keep their economies from tipping into recession.

But there is a vast divide between technocrats trying to salvage waning global growth and politicians with an eye on their voting bases.

President Trump is locked in a trade war with China, with the latest round of tariffs scheduled to take hold on Sept. 1, and he shows no intention of backing down. American tariffs on European automobiles remain a possibility. Britain is negotiating its exit from the European Union and the likelihood of a no-deal departure, which could be economically punishing for the country and its major trading partners, has escalated with Boris Johnson’s ascendance to prime minister.

Complicating matters is Mr. Trump’s view that what is good economically for other countries is bad for the United States — a position that has led him to criticize efforts by central banks to keep their expansions on track. On Thursday, he once again needled the Federal Reserve Board over Germany’s low interest rates, suggesting that negative interest rates on German bonds were putting the United States at a disadvantage.

“Germany sells 30 year bonds offering negative yields,” Mr. Trump wrote on Twitter. “Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition. Strong Dollar, No Inflation! They move like quicksand. Fight or go home!”

Global political brinkmanship is adding to uncertainty just as factories around the world slow production and businesses hold off on investment, stoking fears of a more concerted slowdown.

“Important countries are not in good shape,” said Roberto Perli, head of global monetary policy research at Cornerstone Macro, who said there was a risk of a significant and protracted global slowdown with the potential for outright recessions in some nations, like Germany. “It started for largely cyclical reasons, but since then, other factors have intervened — trade, most importantly.”

While central bankers strive to be politically independent and avoid giving elected leaders advice, they have acknowledged that government policies are threatening growth.

The Fed cut interest rates for the first time since the Great Recession in July, a move driven in part by Mr. Trump’s trade policies and partly by the broader slowdown in global growth. Jerome H. Powell, chair of the Federal Reserve, speaks on Friday and is expected suggest that additional rate cuts are on the table without signaling how many or giving a specific timeline. Tariffs — and their likely escalation — are keeping the Fed and its global counterparts on edge.

“We’re in a period when the center of gravity, the fulcrum, of U.S. economic policy is probably away from monetary policy and more in the area of trade policy, immigration policy” and other political areas, said Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview at the Jackson Lake Lodge.

Mr. Kaplan said that it is “prudent to take more time” before deciding whether or not the Fed should cut rates again in September. He does not vote on monetary policy this year, but has a seat at the table where rate decisions are made.

Asked if he expect additional rate cuts this year, he said that he is “open-minded that we may need to make further adjustments to the fed funds rate beyond what we did in July.”

But central bankers have begun warning that their ability to defend their economies is limited, especially because many never managed to sustainably lift interest rates back from rock bottom after cutting them during and after the global financial crisis.

Many are looking to their political leaders — who will gather in Biarritz, France, for the Group of 7 meeting this weekend — to help keep the world’s prosperity going.

“Policymakers around the world pulled the easiest lever, which is the monetary lever,” Mr. Perli said. “The more a central bank eases, the less powerful monetary policy becomes. We are at the point where, if we want to accomplish something — especially in countries like Europe — the ball is in the fiscal policy territory.”

But “that’s complicated,” he said, “by budget constraints in some countries and political constraints in other countries.”

While consumer spending is holding up in the United States and growth remains decent, manufacturing is slowing and consumer confidence sank in August. Businesses reported holding off on investment as they waited to see how the trade war plays out.

Mr. Trump has also begun mulling more tax cuts to lift the United States economy, though on Wednesday he insisted that it did not need one right now. And the Fed has room to cut rates, should a recession hit. The challenge is primarily one of intense policy uncertainty.

Europe, by contrast, has negative interest rates and a fraught economic backdrop — and while that owes more to fundamentals and global spillovers than domestic politics, growth is getting little help from national governments. In Germany, where China’s slowdown is hurting the manufacturing sector and the economy contracted in the second quarter, the government has been slow to spend more aggressively. Italy is also struggling, but it already has a heavy debt load, limiting its room to maneuver.

The European Central Bank, which runs monetary policy for 19 European countries, is expected to cut interest rates deeper into negative territory and even consider asset purchases in a bid to protect growth — but it is low on ammunition.

“Monetary policy has done a lot to support the euro area and continues, as you can see today, to do a lot,” Mario Draghi, the outgoing head of the central bank, said at a news conference last month. “But if we continue with this deteriorating outlook, fiscal policy will become of the essence.”

German politicians do seem to be cracking open the door to more spending, with Finance Minister Olaf Scholz indicating that the government could make up to $55 billion available. For scope, that is equivalent to a little more than 1 percent of Germany’s economy. The United States’ crisis-era spending package amounted to more than 5 percent of its 2009 gross domestic product, albeit with spending that was spread out over several years.

“This is the best available countercyclical tool in Europe,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, wrote in a research note. But he cautioned against expecting too much. “Politics will slow and could jeopardize the move to fiscal stimulus in Germany.”

Mr. Draghi will not make an appearance at the Wyoming meeting this year, though other European Central Bank leaders will be in attendance.

Like Mr. Powell, Mark Carney, governor of the Bank of England, is paying attention to politically created risks. He warned in a recent BBC interview that a no-deal Brexit would create an “instant” shock. The bank had been setting up for potential rate increases, but investors increasingly expect cuts instead as global growth wanes and trade tensions loom large.

In Australia, the central bank has cut rates to record-low levels as the economy weakens and threats to the nation’s 28-year-old expansion loom large. The threats include precarious household consumption, the broader slowdown in Asia.

Politicians in the nation have passed a tax cut and engaged in infrastructure spending, but they are nevertheless headed for what may be their first budget surplus in more than a decade, underlining the limits to that support. Philip Lowe, the head of the Australian central bank, who speaks on Saturday in Jackson, suggested this month that it would be economically helpful if politicians raised unemployment benefit spending, Bloomberg reported — a policy change that the sitting government opposes.

Economic action might be needed sooner rather than later: Recession signals have been flashing in American bond markets, Japan and South Korea are engaging in their own trade war, and consumer and business confidence have taken a hit in many parts of the world. While recession far from guaranteed, it is looking increasingly likely across a number of economies, including the United States.

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Why Markets Are Not Panicking About Italy (Yet)

A country with one of the scariest debt loads on the planet slips into political chaos. The market reaction: a shrug.

At first glance, it makes no sense that Italian bond yields edged lower after Matteo Salvini, the leader of the populist, right-wing League party, provoked the collapse of the Italian government Tuesday.

Investors and economists have viewed Italy as a crisis waiting to happen because of its toxic combination of astronomical government debt, chaotic politics and dysfunctional economy. You wouldn’t think that a political meltdown would make market players more eager to lend Italy money.

But at least on Wednesday, with Italy still in an uproar, they continued to bid down the interest rate on Italian bonds, albeit by only a few hundredths of a percentage point. It was sign of mild confidence, that lending to the government was now less of a risky proposition.

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Matteo Salvini, leader of the League party. Investors hope a Salvini-led government would be pro-business in its policies.CreditAngelo Carconi/EPA, via Shutterstock

Investors seem to think that any government will be better than the mash-up that fell apart this week, a mismatched coalition of Mr. Salvini’s League and the anti-establishment Five Star Movement. The previous government threatened to break European Union budget rules, cozied up to President Vladimir V. Putin of Russia and has been unable to budge Italy’s growth rate above zero.

Some investors may be betting that the Five Star Movement will ditch Mr. Salvini’s partisans and instead join the center-left Democratic Party. At the very least, the argument goes, such a government would be less likely to lead Italy out of the euro and back to the lira.

Other investors may be wagering on new elections, which polls show that Mr. Salvini would win. He would form a government that would be populist in its rhetoric but — so investors hope — pro-business in its policies.

That may be wishful thinking.

“Many people perceive that anything is better than the current government, even one led by a far-right leader,” said Lorenzo Codogno, former director general of the Italian Treasury and now an independent consultant. He noted, though, “I think the risks are underestimated.”

It’s also possible that investors are so inured to drama in Rome that they simply shrugged off recent events as the latest episode in Mr. Salvini’s reality show. Instead, they are focusing on the likelihood that the European Central Bank will announce new stimulus measures next month that will further push down interest rates across the board, even for Italian debt.

“This type of uncertainty and breakup of governments is not unknown to Italy,” Maria Demertzis, deputy director at Bruegel, a Brussels think tank, said with a degree of understatement. “It was an uneasy marriage to begin with, the fact that it broke up was not a surprise.”

The Italian prime minister, Giuseppe Conte, offered his resignation on Tuesday, causing the dissolution of the government.  CreditAndreas Solaro/Agence France-Presse — Getty Images

In a word, debt.

Italy’s government debt amounts to 134 percent of the country’s gross domestic product, one of the highest ratios in the world. If investors ever lose confidence in the government’s ability to make payments on the debt, the effect on global financial markets would be devastating.

“An Italian default would be a big tsunami in financial markets,” said Lucrezia Reichlin, a professor of economics at London Business School.

The debt would be less of a problem if the Italian economy were growing, but it’s not. Economic growth in the second quarter of this year was zero. The current government has aggravated the debt problem and further rattled markets by threatening to increase the deficit in violation of European Union rules.

Italian 10-year government bonds were trading at a yield of 1.33 percent Wednesday, down 0.035 percentage points from Tuesday. The yield is low in historical terms but is not exactly a vote of confidence in Italy. The comparable German government bond was trading Wednesday at minus 0.67 percent. Investors are in effect paying the German government to keep their money safe, while demanding a premium for more risky Italian debt.

Government bonds serve as benchmarks for bank lending. That means that Italian consumers and businesses have to pay more for a loan than people or firms in Germany or France, a dragging anchor on growth. With recession looming, the government can’t increase spending without alarming financial markets even further.

“We have very little fiscal space for economic stimulus,” Ms. Reichlin said.

Supporters of the Five Star Movement in Rome. Some investors may be betting that the Five Star Movement will join the center-left Democratic Party. CreditAngelo Carconi/EPA, via Shutterstock

Slim. None of the political scenarios seem likely to produce a more effective team, much less one that can address Italy’s deep economic problems.

The Five Star Movement and Democratic Party have been bitter rivals, and it is hard to believe their coalition would be any less contentious than the government that just dissolved. Even relatively stable governments have recently failed to push through reforms.

When Matteo Renzi, a Democrat, was prime minister several years ago, he tried to simplify government decision-making and create a better environment for entrepreneurs. But the changes inevitably threatened established interests and the political backlash drove Mr. Renzi from power in 2016.

“Italy has lost a lot of competitiveness,” Ms. Demertzis said. “Italy has been slow to address this. They need structural reforms to address the issue of productivity, but these reforms are difficult and painful to implement in the beginning, therefore they’re very unpopular.”

If the Five Star and Democratic Parties cannot muster a majority in Parliament during coming days, there will be new elections later this year. Polls show that Mr. Salvini would get the most votes, and then form a coalition with two smaller conservative parties.

Some investors would view a Salvini government favorably, on the grounds that it might be more stable. Mr. Salvini gets support from some segments of Italian industry. Perhaps, the optimists say, his business friends would convince him to do what needs to be done to fix the Italian economy.

Mr. Salvini is popular enough that his party might even win an outright majority in Parliament, removing the need for him to compromise with his more moderate coalition partners.

Mr. Salvini’s track record suggests that, unchained, he would revert to the anti-immigrant and anti-Brussels rhetoric that have fed his popularity in the past. Rather than addressing Italy’s underlying problems, he would try to stimulate the economy by taking on even more debt, said Nicola Nobile, lead economist at Oxford Economics.

If Mr. Salvini takes power, Ms. Nobile said, “then I think he will go on some Trump-style expansionary fiscal policy. He basically believes that if you cut taxes, then economic growth is strong enough to pay these cuts by themselves, which we know as economists is not the case.”

“Salvini is perceived as a person who can do things,” said Mr. Codogno, the former Treasury director, “but I don’t think he has a view of how to address the fundamental issues of the economy.”

The Italian Economy
Italy’s Government Collapses, Turning Chaos Into Crisis

Aug. 20, 2019

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Italy’s Biggest Economic Problem? It’s Still Italy

Aug. 9, 2019

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European Union Warns Italy to Reduce Spending and Borrowing

June 5, 2019

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Germany Has Powered Europe’s Economy. What Happens When Its Engine Stalls?

FRANKFURT — When a debt crisis slammed the eurozone nearly a decade ago, Germany’s powerhouse economy helped lift troubled neighbors like Greece, Portugal and Spain above the turmoil. The question that Europe faces now is whether those countries are strong enough to return the favor.

Germany is on the brink of recession after its economy declined in the year’s second quarter. Spain, by comparison, is experiencing brisk growth, and even the Portuguese and Greek economies are expanding. Buoyed by tourism, booming construction and steady job growth, the southern European countries are helping to offset Germany’s weak performance.

But will it be enough? As the United States economy appears to slow, China loses momentum and Brexit looms, can Europe dodge a downturn?

The question may be decisive for Europe, and crucial for the United States. The European Union and the United States are each other’s biggest trading partners, and a slowdown in Europe would be another drag on America’s economy at a time when bond markets are already flashing warning signs.

Most economists are not yet predicting a Europewide recession, but they are worried about the prospect. There is little chance that the European Union can thrive when Germany is sickly.

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Workers at Adler Group in Ottaviano, Italy, making padding for Fiat car seats. Italy’s stagnant economy and high debt burden could be the kindling for a financial crisis in Europe.CreditGianni Cipriano for The New York Times

“If the largest member state is affected,” said Katharina Utermöhl, senior economist at the German insurer Allianz, “this will also start to weigh on the euro area as a whole because of the close economic relations.”

Should Europe sustain more economic body blows, like a no-deal Brexit, a debt meltdown in Italy or an escalation of the trade war, Ms. Utermöhl said, “the risk of a recession is rather high.”

Some economists are more pessimistic.

“Euroland is headed for a recession,” Carl Weinberg, the chief international economist at High Frequency Economics, a research consulting firm in White Plains, N.Y., said in an email Friday. “All the writing is on the wall.” Mr. Weinberg cited numerous indicators of trouble: less production at eurozone factories, surveys showing increasing gloominess among business managers and a contraction in global trade.

The perilous state of the eurozone economy will be an early test for Christine Lagarde when she succeeds Mario Draghi as president of the European Central Bank in October. Mr. Draghi is expected to announce a new package of stimulus measures next month, but Ms. Lagarde will have to consider what the central bank can do if the situation gets worse.

When Germany’s official statistics office reported on Wednesday that the economy shrank 0.1 percent in the second quarter, shock waves rippled through stock markets around the world. The reaction reflected the degree to which Germany sets the tone for the Continent.

Germany has the eurozone’s biggest economy, accounting for more than a quarter of the bloc’s output. It has the most people, 83 million, and the most workers, who help stoke nearly every other country’s economy. The list of European Union countries that count Germany as their No. 1 trading partner is long. It includes France, Italy, the Netherlands, Belgium, Slovakia and Sweden.

The relationships sometimes border on dependency. Germany accounts for 27 percent of Poland’s foreign trade. Britain, Poland’s No. 2 trading partner, accounts for only 6 percent, according to World Bank data.

Suppliers throughout Europe earn much of their revenue by selling to big German manufacturers like Daimler, Siemens and ThyssenKrupp. But those companies are struggling.

Daimler, the maker of Mercedes-Benz cars, has issued three profit warnings since October. Siemens, whose products include high-speed trains and equipment for oil and gas producers, this month reported a 6 percent decline in net profit. And the ratings firm Moody’s downgraded ThyssenKrupp’s debt further into junk territory this week, an indication that the giant steel maker is considered a default risk.

As it strains against the German downdraft, Europe is battling a host of other woes. High on the list is Italy, which has a stagnant economy, an unstable government and one of the highest debt burdens in the world, giving it the potential to touch off another financial crisis.

Another risk is that Britain will leave the European Union without a deal with Brussels, creating chaos in the flow of goods across the English Channel. And car sales are plunging around the world, threatening an important source of jobs in countries like Italy, France and Slovakia.

The biggest squeeze comes from the trade war. President Trump’s tariffs on a range of Chinese imports and on European steel and aluminum have disrupted supply chains and profoundly unsettled managers who make decisions about how much money to invest in new factory space and how many people to hire.

Germany is especially vulnerable to trade tensions because exports account for almost half of the country’s gross domestic product. And it is most sensitive to the downturn in the auto industry because vehicles are the country’s biggest export. Sales of German cars have slumped as Chinese buyers pull back.

It can be difficult to gauge how deeply other individual economies are rattled by the trade war, but the latest numbers across Europe, released on Friday, contained troubling signs. Eurozone exports fell 5 percent in June, the European Union’s official statistics agency reported. Trade accounts for about one-third of the bloc’s gross domestic product.

Eurozone growth has already been meager this year. The 19 countries in the currency bloc collectively grew 0.2 percent from April through June. The European Union, which includes the eurozone plus nine other countries, recorded the same rate.

Barcelona, Spain, a popular tourist destination. The country is experiencing brisk economic growth.CreditEmilio Parra Doiztua for The New York Times

Spain was one of the best performers, registering a growth rate of 0.5 percent compared with the previous quarter, which helped balance out Germany’s 0.1 percent decline in output. But Spain and other fast-growing countries like Denmark and Finland are not big enough to replace Germany as Europe’s economic locomotive.

Even if Europe manages to avoid two consecutive quarters of declining output, the technical definition of a recession, no one expects growth to be particularly impressive.

“The slowdown in growth is everywhere in the eurozone, more or less,” said Jörg Krämer, the chief economist at Commerzbank. “There is no decoupling.”

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It’s Another Rocky August in the Markets. Does It Look Like 1998, or 2007?

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A news ticker in Times Square in September 2008. The collapse of Lehman Brothers was one of the events set off by market turmoil in August 2007.CreditJoshua Lott/Reuters

When the global financial system wobbles, it always seems to happen in August.

Maybe it is because so many traders are on vacation, making for less liquid markets and wilder swings. Maybe it’s just coincidence. But some of the most turbulent events in financial markets in recent times have arrived in the late summer, including the Augusts of 1989, 1998, 2007, 2011 and 2015.

And so it is again in 2019, as a trade and currency war between the United States and China, as well as a slowing European economy and geopolitical strains worldwide, have sent markets spinning. The pattern continued with a steep global sell-off Monday.

To make sense of this latest turbulence, and what it portends for the global economy, two past episodes of August volatility are particularly worth studying. In fact, the outlook for the economy in 2020 depends in large part on which historical moment proves to be the better comparison: August 1998, or August 2007.

In both years, there were problems similar to, though not exactly like, those afflicting the global economy and markets today. But in 1999 the United States economy ultimately continued booming, whereas the events of 2007 led straight into the deepest recession in modern times.

What happened: Several East Asian nations had been in financial crisis for about a year, but in August 1998, a full-blown crisis in the debt of emerging nations enveloped global markets.

The immediate cause was Russia’s decision to default on its debt obligations, which sparked fears that other nations might do the same. Money flooded into safe assets, particularly government debt of the United States and Germany. The value of the dollar rose on exchange markets, worsening the situation for emerging nations that owed money in dollars. Commodity prices fell, reflecting a slowing world economy and adding to the strain on nations that relied on oil and similar exports.

The United States economy was in the midst of a boom at the time — the unemployment rate was 4.5 percent in August 1998. But American policymakers worried that the international turbulence would tighten the flow of credit in the United States and put the expansion at risk.

“Let me just go a step further and point out the one thing that I find particularly bothersome: It is that this element of disengagement, fear, uncertainty and the like is really pervasive around the world, and it is occurring in the same time frame,” said Alan Greenspan, the Fed chairman at the time, on a confidential conference call with the central bank’s policy committee in September 1998 (a transcript was released after a long lag).

Mr. Greenspan and his colleagues acknowledged that the domestic economy still appeared strong, but cut interest rates that month to forestall damage that might come from overseas.

“While we have yet to see this in the real variables of the U.S. economy, except at the margins, it is very hard if history is any guide to believe that growth above 3 percent is possible in the context of the types of decisions that are being made for capital investment and inventories,” Mr. Greenspan said at that meeting.

The Fed would ultimately cut interest rates three times that fall.

The results: It turned out he was too pessimistic. The United States economy grew a stunning 4.8 percent in 1999, and the jobless rate kept falling. The emerging markets panic subsided, and the combination of the dot-com boom and the Fed’s rate cuts turbocharged the stock market.

If anything, the economy might have been running too hot in 1999, in the sense that the eventual popping of the stock market bubble and resulting drop in corporate investment in 2001 caused a recession (albeit a mild one).

The parallels: As in 1998, the danger in 2019 comes from a slumping world economy, reflected in falling commodity prices, a rising dollar and money gushing toward Treasury bonds and other safe assets. And as in 1998, the Fed is in an interest-rate-cutting mode to try to offset the damage to the United States.

The differences: But there are important differences, too. Trade tensions are at the core of the current bout of volatility, and in this case policy in the United States is driving the uncertainty — witness the Trump administration’s plans to apply additional tariffs on China on Sept. 1 and its declaring the country a currency manipulator this week.

Additionally, the economic damage to the United States in 1998 was limited not only thanks to the Fed’s actions, but also because the real crisis was taking place far away — it was not striking at the heart of the supply chains and export markets of America’s biggest companies.

The lesson: The episode is a reminder that financial contagion, though real, is not inevitable.

What happened: Throughout 2007, more and more American homeowners were defaulting on their home mortgages. As a result, the supposedly safe securities backed by these mortgages — especially subprime mortgages — were falling in value.

That generated losses, especially among the European banks that were heavy holders of those securities, and led them to hoard cash and become reluctant to lend to one another.

A dangerous cycle was taking hold: A slowing housing market in the United States was causing a slowdown in the economy and losses in the financial system around the world. The breakdown in the financial system in turn was tightening the availability of credit, which made the housing situation worse.

The European banking system was freezing up, and on Aug. 9, the European Central Bank injected 95 billion euros to try to ensure the free flow of money and avoid a credit crunch. It was the first in a long series of aggressive actions by central banks around the world.

By September, the Fed was cutting interest rates in hopes of preventing a recession, and the government ultimately engineered a series of huge bailouts of the financial sector. But the vicious cycle was too powerful: The United States entered a recession in December 2007, and the downturn became severe in the fall of 2008 after the collapse of Lehman Brothers.

The results: The global financial crisis was a transformative event, inflicting enormous pain on billions of people and undermining the credibility of centrist politics and elite institutions worldwide.

The parallels: As in August 2007, the forces unleashed in global markets this month reflect complex, intertwined forces across different oceans and markets.

This time, instead of the American mortgage sector, the problems are rooted in a rapidly escalating trade war between the United States and China, and in longer-term problems in Europe. Those forces are combining to drag down global growth and commodity prices, putting a damper on investment spending by American companies, despite a generally solid economy.

Bond markets are increasingly pricing in lower growth and inflation in the years ahead, and more rate cuts from the Fed are expected, suggesting investors believe that a meaningful downturn is on the way and a recession is a significant risk.

The differences: But there are also major differences between 2007 and today, which give reason to think things won’t be nearly as bad as they were then.

First, one of the key drivers of today’s economic troubles — the trade war — is within the power of policymakers to end. If President Trump starts to see evidence that it is about to cause a recession in an election year, he will presumably look for ways to de-escalate the tension and calm things.

Second, global banks are significantly better capitalized than they were in 2007 — they have bigger cushions that allow them to suffer losses without becoming insolvent. That means there’s less potential for a similar vicious cycle that does more damage than policymakers can control.

Or, at a minimum, if those kinds of financial contagions and dangerous feedback loops were to re-emerge, they would probably come from somewhere different than they did in that crisis. High corporate debt levels, for example, could be such a source of risk.

The lesson: In trying to figure out whether this month’s financial turbulence will turn into a major disruption to the economy itself, the contrast of 1998 and 2007 gives some guidance.

Is the disruption driven primarily by events in other countries, or are domestic and international problems interrelated? Are there key nodes through which risk can metastasize, as occurred in the global banking system in 2007? Do policymakers have the tools and the will to try to contain the damage?

The lesson for policymakers may be this: Pray for this to be more like August 1998; plan in case it turns out to be more like August 2007.

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E.C.B. Says It Is Ready to Restart Economic Stimulus Measures

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Frankfurt — The European Central Bank on Thursday set the stage for a renewed attempt to improve the eurozone’s sagging economy, saying it was considering reviving a program meant to pump money into the region’s financial system.

“The Governing Council is determined to act” if inflation remains stubbornly below the official target of 2 percent, the bank’s policymaking panel said. Committees have begun studying potential stimulus measures that include restarting purchases of government and corporate bonds, a form of printing money known as quantitative easing, the statement added.

The move was a sharp reversal, coming only half a year after the bank began winding down an earlier bond-purchasing program. An increasing number of indicators are warning that the eurozone and global economies are losing momentum, prompting central bankers around the world to react. In the United States, the Federal Reserve is expected to cut interest rates when it meets next week.

Signs are accumulating that the eurozone is in danger of slipping into recession. On Thursday, a closely watched survey of business optimism in Germany suffered its biggest drop since early 2009. Germany has the eurozone’s largest economy and sets the tone for the region. Optimism among German manufacturers “is in free-fall,” the Ifo Institute in Munich, which conducted the survey, said in a statement.

The central bank still considers the risk of recession to be “pretty low,” Mario Draghi, the president of the European Central Bank, said at a news conference in Frankfurt. But he also listed numerous threats looming over the global economy, including trade war, slower growth in China and the possibility that Britain will leave the European Union without a treaty, a so-called hard Brexit.

And he expressed frustration that inflation in the eurozone’s 19 countries, which is rising at an annual rate of 1.3 percent, refuses to reach the 2 percent considered optimal for growth. “We don’t like what we see on the inflation front,” Mr. Draghi said.

The European Central Bank had been widely expected to deploy measures to counteract the slowdown after Mr. Draghi all but promised action in statements he made in June. Analysts and economists now expect the central bank’s Governing Council to announce a cut in interest rates or a resumption of bond purchases, or both, when it meets on Sept. 12.

The central bank “is clearly preparing markets for a rate cut and probably even more at the September meeting,” Carsten Brzeski, chief economist ING Bank in Germany, said in a note to clients.

But there is widespread fear that central banks won’t be able to continue propping up the world’s economies in the same way they did during the crises of years past. There is simply not much more they can do, analysts say.

The European Central Bank’s benchmark interest rate, the rate it charges commercial banks to borrow cash, is already zero. There is still room for the bank to cut the so-called deposit rate, the rate commercial banks pay to deposit money at the central bank. The deposit rate is already minus 0.4 percent, in effect a penalty that prods banks to lend money rather than to hoard it at the central bank.

The negative rate also serves as a benchmark for the bond market, helping to drag down the interest that consumers ultimately pay on mortgages or car loans. The yield on 10-year German government bonds, considered the safest investment in Europe, has dipped below minus 0.4 percent. In effect, investors are willing to pay the German government to keep their money safe.

But analysts say that the deposit rate cannot go much lower without distorting money markets. And the central bank does not have that much room to buy more government and corporate bonds, another method of pushing down market interest rates. The European Central Bank already owns a huge chunk of the bond market as a result of its earlier stimulus programs.

By signaling action early, the central bank may be trying to get maximum impact from the tools it has left. Like firefighters running out of water, the bank’s policymakers are better off using what they have before the blaze gets even bigger.

Action now also effectively locks in policy well after Mr. Draghi’s term expires at the end of October. His successor, Christine Lagarde, the managing director of the International Monetary Fund, will not have much room to maneuver for her first year in office.

Ms. Lagarde, however, is seen as a supporter of Mr. Draghi’s approach to monetary policy. Financial markets will take comfort in knowing that the central bank will continue to do what it can to avoid recession even after Mr. Draghi leaves.

The European Central Bank’s Governing Council said Thursday that it had no objection to Ms. Lagarde’s appointment by European political leaders. Ms. Lagarde is “a person of recognized standing and professional experience in monetary or banking matters,” the council said in a statement.

Mr. Draghi was more effusive, saying Ms. Lagarde will be “an outstanding president of the E.C.B.” and implicitly defending her against criticism that she lacks central banking experience. As director of the I.M.F., Ms. Lagarde made decisions in consultation with members of the organization and staff economists. “It isn’t much different than the E.C.B.,” Mr. Draghi said.

The council does not have the power to block Ms. Lagarde’s appointment, but its opinion carries significant weight.

Mr. Draghi has been mentioned as a potential successor to Ms. Lagarde at the I.M.F., but he ruled that out Thursday. “I’m not available,” he said.

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