A rate cut from the European Central Bank could devastate the economy, but it’s the only move left

In an ideal world, eurozone countries facing a downturn would not be relying on monetary policy to increase demand. Not in this climate, unfortunately

The bank's version of quantitative easing is expected to resume (AFP)

This Thursday, Mario Draghi, the outgoing president of the European Central Bank, will announce yet another effort to boost the eurozone economy. It will be his penultimate meeting before Christine Lagarde, managing director of the International Monetary Fund, takes over on 1 November. He aims, from all accounts, to go out with a bang. The markets expect a resumption of the ECB version of quantitative easing, buying bonds to inject cash into the economy, and another cut in the ECB deposit rate to minus 0.5 per cent. He may surprise everyone by doing something more – we’ll see.

The rationale behind such a package is that the eurozone economy is flagging and something needs to be done to inject some growth. The trouble is that on past form yet another monetary boost is not going to have much effect. In fact, it may hurt the economy more than it helps it.