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Euro-zone fiscal policy is easing for the first time in a decade

IT IS HARD to defend yourself with one hand tied behind your back. Yet the euro area’s economy has been repeatedly asked to do just that. Whenever it is taking a beating, it has had to fight back with monetary policy alone. The European Central Bank (ECB) has cut rates to zero and below, bought bonds by the bucketload and lent super-cheaply to banks. Fiscal policy has been barely used—and has sometimes done more harm than good. Debt crises forced governments in the south of the bloc to tighten their belts; those in the north chose to do the same.The economy is struggling again, and the ECB’s firepower is waning. The central bank said on March 7th that it would keep interest rates on hold at least until the end of this year and extend its programme of cheap loans to banks. Even then, it does not expect inflation, now 1.5%, to reach its target of close to but below 2%. Its interest rates are already at rock bottom. Its bond-buying programme cannot easily be expanded because its holdings of German government bonds are close to legal limits.
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