Main focus of Thursday, December 22, 2011

ECB turns on credit tap

The ECB has issued the largest amount of credit in its history under Draghi. (©AP)

The loans offered by the European Central Bank at just one percent interest met with great demand from more than 500 commercial banks on Wednesday. The idea is that the banks use the money among other things to purchase the bonds of crisis-hit countries. But according to commentators the loans amounting to just under 500 billion euros won't be invested in government bonds and therefore won't end Europe's current crisis.

Fresh cash won't be used for government bonds

The cheap euro loans offered by the European Central Bank met with high demand on Wednesday. But the liberal-conservative daily Neue Zürcher Zeitung doubts that banks will invest the cheap money in euro states' government bonds: "Certainly, at first glance it looks like a good deal to borrow money at the current one percent interest and invest it in securities that yield higher percentages. But the banks parted with the illusion that bonds are non-risk securities long ago. Quite a few European banks would be happy to reduce their large stockpiles of Italian or Spanish government securities; hardly any will be thinking of stocking up on them. In addition the banks know full well that the next stress tests by the banking authority EBA are on the way. ... So it's more likely that the banks will use the long-term ECB funds for normal day-to-day activities, including granting loans, and to pretty themselves up for the next visit by the regulators." (22/12/2011)

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Who's saying what » Ways out of the debt crisis

Flood of cash no solution

The ECB's cheap money won't necessarily prevent a looming credit crunch or restore confidence in Europe's crisis management, the liberal-conservative daily Corriere della Sera writes: "When there's only one show in a city everyone goes there. The same happened at the ECB's counters yesterday. ... The show was sold out. But this doesn't mean that the banks will use the 500 billion euros to ease the credit crunch or buy government bonds. The banks will manage the fresh funds like citizens who have lost their trust in the system. They fear new regulations from the authorities that will lower the value of their assets or further mistakes in the political crisis management. Public and private entities in Europe no longer trust each other. Not even when the computers of the ECB (electronically) spit out 500 billion euros. The negative reaction of the markets yesterday was unmistakable proof of this." (22/12/2011)

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More from the press review on the subject » Fiscal Policy, » Banks, » Europe
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Who's saying what » Ways out of the debt crisis

Debtor states given a reprieve

With its cash injection the ECB is indirectly propping up Europe's debt-ridden states, giving them more time to find a solution to the crisis, notes the conservative daily Die Welt : "Already in the last few days we could see where part of the money was going - for example into Spanish government bonds. This led interest rates on these securities to drop temporarily. So with this move the ECB is helping not just the banks but indirectly and very deliberately also the ailing states of the Eurozone, giving them easier access to fresh funds. But those who believe that central banks flooding the markets with cash is the real solution to Europe's crisis fail to appreciate the huge dimensions of the problem. ... For Europe as a whole is not in stable balance. In countries like Greece and Portugal salaries are far too high for the lacking competitiveness of their economies. ... The ECB has bought them some time to finally address these issues." (22/12/2011)

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More from the press review on the subject » EU Policy, » Fiscal Policy, » Europe
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Who's saying what » Ways out of the debt crisis

The ECB's spectacular move

The gigantic amount of credit freed up by the European Central Bank can calm the markets and help rescue the euro, the conservative daily Rzeczpospolita writes: "The only question that remains is whether the banks will take the risk of for example purchasing Italian or Spanish bonds or try to keep risks to a minimum. If they invest in the indebted countries the situation on the markets could calm down, meaning investor confidence will also be sure to grow. But if they don't, all the old problems will return. The ECB's current support for the banks is so spectacular that the volume of the loan is almost twice as high as expected. In addition the three-year term gives banks and investors the time they need." (22/12/2011)

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More from the press review on the subject » Financial Markets, » Banks, » Europe
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Who's saying what » Ways out of the debt crisis

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