( CNN ) -- Mario Draghi is stepping on the gas , cutting interest rates to record lows , trying to funnel money into the real economy , and introducing a charge on banks that hold excess reserves with the European Central Bank . He is right to worry . Eurozone inflation is running at less than 1 % a year , with several countries already experiencing falling prices . Deflation , and even very low inflation , can be a huge drag on economic activity . There 's no encouragement to spend today to avoid higher prices tomorrow -- indeed , falling prices make putting off purchases attractive . Flat or falling prices also make it harder for businesses and consumers to pay off the debts left over from the financial crisis , increasing their reluctance to invest and spend . In the grip of these forces , Japan suffered two decades of stagnation . The eurozone 's recovery is already stalling , and a deflationary downward spiral would be a disaster . Unfortunately , Draghi is likely to discover the ECB 's gas pedal is already on the floor . There 's no way to push money into the economy unless businesses and consumers are ready to borrow it to invest and spend . Today 's measures are designed to encourage banks to look harder for borrowers . They aim to do this by lowering banks ' costs of borrowing , by imposing some small costs on banks that sit on money rather than lending it out , and by making it cheaper for banks to borrow from the ECB to fund lending to small businesses . But the banks would n't be sitting on money in the first place if they had credit-worthy business clients eager to take out loans . Indeed , rather than clamoring for new loans from the ECB , the banks have been paying down existing ones . What is needed are policies addressed not to lenders , but to potential borrowers and spenders , who are holding back because of the dismal prospects for growth . A significant chunk of responsibility lies on the shoulders of Draghi and other ECB leaders for the eurozone 's utter failure to construct a plausible model for growth since the crisis . After a brief period of fiscal stimulus in 2009 , the eurozone has pursued an austerity agenda that compounds the weakness of private demand by shrinking public demand . Draghi and his predecessor Jean-Claude Trichet did all they could to ensure monetary easing was accompanied by fiscal tightening , in effect refusing to hit the gas pedal unless governments were standing on the brakes . This seemingly bizarre policy does have a rationale . The idea is to force the countries of the eurozone periphery become more competitive through cutting costs and especially wages , enabling growth through exports rather than domestic demand . To some extent , the policy has worked : savage levels of unemployment and ECB-backed measures to reduce labor bargaining power have lowered costs in the periphery . By the end of 2013 , exports accounted for over 27 % of eurozone GDP , up from 23 % on the eve of the financial crisis . Further , the eurozone trade surplus exceeded 3 % of GDP . These figures are the highest since the introduction of the euro . Despite these unprecedented developments , eurozone growth remains exceedingly weak . That demonstrates the deep intellectual failure behind the austerity-competitiveness agenda . The rickety export-led growth model faces another important threat : the euro 's dramatic appreciation . Draghi 's famous July 2012 pledge to do `` whatever it takes '' to preserve the euro stopped the flight from sovereign bonds and other euro-denominated financial assets . Trade surpluses also tend to promote currency appreciation . The stronger euro raises the prices of the currency bloc 's businesses versus their competitors , reversing a substantial portion of the painfully won competitiveness gain . This accounts for the efforts of Draghi and others to talk the euro down , but the effect has not offset the appreciation . While Draghi clearly hopes that today 's measures will further weaken the euro , they are unlikely to have much effect . For all their exceptional character , today 's ECB measures are , at best , efforts to shore up a fundamentally misguided growth model that is doomed to collapse . A serious policy to fight deflation requires putting both feet on the gas , with monetary stimulus and fiscal stimulus working together , a model that has had some success in Japan . It requires abandoning the mirage of export-led growth as a savior for the eurozone , and vigorous efforts to stoke demand by increasing government spending and promoting wage growth . Only this will lead to a virtuous circle of borrowing , lending , and growth , and a sustainable rate of price growth . But Draghi 's statement today revealed how very far he is from recognizing this point . He once again reiterated his support for austerity-led policies whose only coherent rationale is to promote falling ( or at best stagnant ) prices in the eurozone 's periphery : in other words , precisely the deflation he claims to wish to avoid . Until this fundamental contradiction is resolved , the eurozone is going nowhere . Read more : ECB cuts rates to head off deflation risk . Read more : Europe may be recovering , but crisis not over for us . Read more : What will Europe do ? The opinions expressed in this commentary are solely those of the author .
The ECB cut interest rates to a new record low in a bid to boost the economy . But economist David Woodruff says the approach will not work for the economy . What is needed are policies favorable to consumers and spenders , he writes .