The European Central Bank's plan to rescue Europe's economy won't work on its own. Its success hinges on whether people, governments and companies do what's needed: Spend, hire, borrow, invest, export, expand.
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ECB chief Mario Draghi on Thursday delivered on a pledge to do whatever it takes to pull Europe out of a deep and prolonged slump. The central bank will buy 1.1 trillion euros ($1.3 trillion) worth of government and corporate bonds through September 2016 — longer if necessary — to shrink the euro's value, boost exports and encourage borrowing, spending and hiring.
"The ECB has made its move," says Jacob Kirkegaard, senior research fellow at the Peterson Institute for International Economics. Now, "the euro area needs to go to work."
Collectively, the economy of the 19 nations in the currency alliance eked out growth of just 0.2 percent in last year's third quarter. Now that the ECB has acted, here are five things the economy needs to revive itself:
— GOVERNMENT SPENDING
After the Great Recession ended, instead of spending to spur growth, many European governments cut spending and raised taxes to pare their debts. The results have been dismal: The eurozone slid back into recession in 2011. It's expected to grow just 1.2 percent this year, according to the International Monetary Fund. The eurozone's collective unemployment rate is 11.5 percent. (The U.S. rate is 5.6 percent.)
Kirkegaard and other economists think the eurozone should pour money into roads and other infrastructure projects to energize hiring and growth. The ECB's action could help: Among the bonds it buys could be those issued for infrastructure projects by the European Investment Bank, part of the European Union, Kirkegaard says. Still, Germany and some other wealthier European countries oppose aggressive spending on public works, worried they'll end up footing the bill.
— CONFIDENT CONSUMERS
European consumers have been reluctant to spend. One reason: With the economy so anemic, prices are actually falling — down at an annual 0.2 percent in December. Tumbling prices encourage consumers to delay spending. They figure they can buy things more cheaply in the future. The ECB's bond-buying program is intended to break that mindset, to convince consumers that prices will rise and to prod them to spend now rather than later.
The bond purchases could also drive up stock prices and make investors feel wealthier and more willing to spend.
A few modestly positive signs have emerged. Eurozone consumer confidence rose this month from December, though it remains at low levels, according to the European Commission. And auto sales rose 5.7 percent last year in Europe, snapping a six-year losing streak.
— MORE EXPORTS
Many economists think the ECB's bond purchases are meant mainly to knock down the value of the euro and thereby give European exporters a competitive edge abroad. The thinking: As the euro's value falls and interest rates follow, investors will shift money into fixed-income investments with higher yields — U.S. Treasurys, for example. Such a shift would lower the euro's value.
Indeed, after Thursday's announcement, such speculation by investors drove the euro to its lowest level against the U.S. dollar in 11 years. A cheaper currency is doubly valuable to European companies: It makes their products and services more affordable in other countries. And it boosts profits because the revenue those companies collect in, say, U.S. dollars is worth more euros once the money is brought home.
A weaker euro also increases prices of imports to Europe, thereby raising inflation closer to normal levels. The ECB's "goal is to severely weaken the euro and so spur exports and boost imported inflation," says Tom Elliott, international investment strategist at deVere Group, a financial consultancy.
— ECONOMIC REFORMS
Economists say European countries — especially France and Italy — could do more to encourage growth by scrapping rigid rules. These include rules that discourage employers from hiring by making it all but impossible to fire workers once they're on the job. The rules have protected older workers. But they've locked younger ones out of the job market: The eurozone's unemployment rate for people under 25 is a painful 23.7 percent.
Italian Prime Minister Matteo Renzi has vowed to enact reforms. But French President Francois Hollande "has not been willing to take any political risks," Kirkegaard says.
— STRONGER BANKS
Europe's banks still haven't recovered from the financial crisis. Many still carry bad debts. They lack confidence to lend to consumers and companies or to do business with each other. Economists say banks need to reinforce their buffers against losses by raising capital or getting help from the government.
When banks aren't lending, Europe's economy sputters. European companies rely heavily on bank loans to finance their activities, notes Eric Lascelles, chief economist at RBC Global Asset Management.
Overall, Carl Weinberg, chief economist at High Frequency Economics, has doubts about the ECB's bond-buying plan: "This program will bring down already low bond yields and interest rates, both in euroland and around the world. It will cheapen the euro. It will boost asset prices. These three effects will benefit the euroland economy. Will this result in the desired acceleration of growth? ... We are skeptical. After a short-term blip, the credit constraint will kick in. Until the banks are fixed and lending again, there cannot be any sustained or meaningful economic growth."
AP Business Writer David McHugh in Frankfurt, Germany, contributed to this report.