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The economic picture no doubt will also suffer from past monetary restraint. Because the ECB, until very recently, has held back from helping in the crisis, it actually compounded the continent’s liquidity problems with monetary restraint. In 2010 and 2011, money circulating in the eurozone grew only slowly, too slowly to support normal economic needs, much less offset the losses brought by the crisis. Europe’s narrow, M1 money measure expanded only 4.3% in 2010 and slowed into the 2% to 3% range last year. Its broader, M2 definition of money expanded at less than a 3% annual rate on average for both years, and the broadest, M3 money measure barely topped that meager growth rate. Even with the ECB’s new, easier policy, it will take months for new money flows to have an economic effect, probably not until the final quarter of the year. In the interim, the legacy of past monetary restraint will dominate the eurozone.
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