ECBdata compiled by S&P Global Market Intelligence suggests that Europe andits banks are trapped in a vicious circle of low growth, low lending and lowrates.

Thefigures show that there has been little change in the size and structure of EU lendingsince April 2011, with total lending as of April 2016 sitting at €23.75trillion, just a fraction higher than the €23.55 trillion recorded five yearsearlier. Loans to nonfinancial corporations fell over the period to €5.3trillion from €5.8 trillion, reflecting a muted outlook for businessdevelopment.

"Inthe eurozone as a whole, the corporate sector is saving and the aggregatesavings are larger than domestic investment, which is weak," said HeikoPeters, an economist at Deutsche Bank, who observed that capacity utilizationwas in line with its long-term average in Germany but generally lower elsewherein Europe. Demand is thus weak for industrial products and for investmentlending, hitting growth.

Bycontrast with the overall picture, individual country lending has been quitevolatile. In the five years to April 2016, Spain experienced significantdeleveraging following the end of its property bubble, with lending contractingby 27%. Lending was virtually flat in Germany and Italy, while France saw 8.9%and the U.K. 4.2% growth.

Centralbanks, in particular the ECB, are striving to pick up the slack through lowrates and nonstandard measures such as quantitative easing. These have beenparticularly controversial in Germany, but have been strongly defended by ECBPresident Mario Draghi.

TheDeutsche Bundesbank in its June monthly report said nonstandard measures doappear to be having a "minor" effect on loan growth, with the banksit surveyed reporting "a noticeable easing effect on the terms andconditions for new loans across all business lines." Itsfigures show that deleveraging in Spain and Italy has slowed significantlysince 2014, while lending growth has improved in Germany, France and theeurozone generally.

SocGenanalysts observed in a July 31 note that the ECB has been easing bank fundingconditions since 2012 through low rates, quantitative easing and longer-termrefinancing operations, but that its efforts proved disappointing until 2014.Thereafter, however, bank lending costs in the periphery fell significantly andinterest rates dropped notably for peripheral banks.

"Thereis no doubt that the transmission of monetary policy through the euro bankingchannel has improved," the economists said.

Butalthough lending costs have become more uniform across the eurozone, lendingvolumes to business have still varied widely, SocGen added. In the year to May,France, Spain and Germany saw double-digit rises in loans below €1 million,while Austria, Portugal, Belgium and Italy recorded falls.

Peterssaid France had notably taken up more funding under the ECB's new targeted LTROprogram than Germany, and the Banque de France reported "stilldynamic" year-over-year investment growth of 5.0% in June. However, FrenchGDP growth was flat at 0% in the second quarter after a 0.7% rise in the firstquarter.

Theoutlook could be worsening. Pointing to a weak purchasing managers' index inJuly, Peters said Deutsche Bank was predicting 1.5% growth for France in 2016followed by 1.3% in 2017, with corresponding figures of 1.7% and 1.3% forGermany. He observed that further nonstandard action was now expected from thecentral banks to sustain growth and lending.