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As Uncertainty Clouds Economy, Europe Pulls Back on Easy Money

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RIGA, Latvia — A trade war with the United States looms. Populists have taken power in Italy, posing a new threat to the euro. Growth is sluggish, and there is even talk of another banking crisis.

It would not seem the ideal time to put the brakes on Europe’s economy. But that is what the European Central Bank is preparing to do.

For more than a decade, the central bank unleashed a wave of cash to stimulate growth, effectively saving Europe from the wrenching consequences of its debt crisis. The bank said Thursday that the era of easy money was over, and outlined plans to completely remove its support by December.

In essence, the bank is declaring the region cured, or at least strong enough to stand on its own. It is signaling that it doesn’t want to be in the business of saving politicians from themselves or responding to every dip in growth with a new dose of stimulus. And it is under pressure to remain in sync with a crucial trading partner after the United States Federal Reserve raised its main interest rate on Wednesday.

What will happen next is uncertain, because the European Central Bank has pumped unprecedented amounts of money into the economy. There may be unpleasant surprises: think real estate bubbles, more wobbling banks or a surge in bankruptcies.

“It’s not the right time,” said Zsolt Darvas, a monetary policy expert at Bruegel, a think tank in Brussels. “If you look at what happened in the last few quarters, everything became more disappointing.”

That may be an understatement. In addition to a slowdown in growth, Italy is gripped by political turmoil after populists took power on an anti-euro platform. Trade relations with the United States are at their poorest in decades, and most likely will get worse as Europe plans punitive duties on an array of American products as retaliation for President Trump’s tariffs on steel and aluminum. And Deutsche Bank, one of the region’s most important lenders, is in crisis.

In countries like Italy, there lurk an unknown number of so-called zombie companies — businesses that have avoided bankruptcy only because of low interest rates and tolerant banks. A rise in interest rates could prompt a mass collapse of those weak companies.

Some economists are even resurrecting the word “stagflation” — a dreaded condition in which inflation rises at the same time that growth stagnates. The region’s residents would face the prospect


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