Cheap ECB money no miracle cure

The European Central Bank (ECB) is beginning the first of two refinancing deals today, Wednesday. The deal allows banks to take out three-year loans at just 1 percent interest. But the flood of money won't solve the banks' real problem which consists in their having inadequate capital reserves, the liberal-conservative daily Corriere della Sera points out: "The ECB's operation won't be a cure-all either for companies or the finance ministry, at least not in Italy. To grant customers credit or buy government bonds a bank requires not just the necessary liquidity but also adequate capital - more capital than it has already spent in the form of loans. Because each new loan entails new risks. To run those risks the bank needs 'free' capital. Without that liquidity is of little use. ... The ECB can help to fight the recession. But to believe that Frankfurt will solve our problems is an illusion. We need growth incentives - and we need them now."

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