ECB's massive loans fail to fuel fragile recovery
Source: Agencies |
March 29, 2012, Thursday
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Print Edition
Print Edition
THE European Central Bank yesterday said the flow of credit to businesses slowed in February - a sign that the bank's massive loans to the financial system have yet to spur a fragile eurozone economy.
The downbeat numbers were released as a key member of the bank's governing council warned again about the risks involved in the 1-trillion-euro (US$1.33 trillion) two-stage action that flooded the banking industry with cheap three-year loans.
Jens Weidmann, head of Germany's Bundesbank, said the ECB's "wall of money" was needed as an emergency measure - but has only bought Europe time to fix its problems.
Figures released yesterday showed loans to non-financial companies - a key credit indicator - fell by 3 billion euros in February from the month before, after increasing by only 1 billion euros in January.
Compared with the same month a year ago, loans to businesses grew by only 0.4 percent, down from 0.7 percent in January.
The ECB made two rounds of cheap loans - known as the "longer-term refinancing operation" - to banks on December 21 and February 29, adding about 500 billion euros in net new credit to the financial system. The loans were introduced in the hope that the money would find its way to businesses and consumers as loans and, in turn, promote growth.
The ECB loaned just over 1 trillion euros, handing out 489 billion euros to 523 banks on December 21 and another 530 billion euros to 800 banks on February 29 at a current interest rate of 1 percent. The total new credit comes out to around 500 billion euros because banks moved some of their earlier borrowing from other ECB loan offerings to the two so-called longer-term refinancing operations.
The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe's shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.
But the 17-country currency bloc is still going through what is expected to be a mild recession that will complicate efforts to reduce the debt loads plaguing governments. ECB President Mario Draghi said the aim of the loans was to avoid a credit crunch that would choke off the finance that businesses need to expand and hire people.
Commerzbank economist Michael Schubert said the ECB's action would take time to feed through to the wider economy.
The downbeat numbers were released as a key member of the bank's governing council warned again about the risks involved in the 1-trillion-euro (US$1.33 trillion) two-stage action that flooded the banking industry with cheap three-year loans.
Jens Weidmann, head of Germany's Bundesbank, said the ECB's "wall of money" was needed as an emergency measure - but has only bought Europe time to fix its problems.
Figures released yesterday showed loans to non-financial companies - a key credit indicator - fell by 3 billion euros in February from the month before, after increasing by only 1 billion euros in January.
Compared with the same month a year ago, loans to businesses grew by only 0.4 percent, down from 0.7 percent in January.
The ECB made two rounds of cheap loans - known as the "longer-term refinancing operation" - to banks on December 21 and February 29, adding about 500 billion euros in net new credit to the financial system. The loans were introduced in the hope that the money would find its way to businesses and consumers as loans and, in turn, promote growth.
The ECB loaned just over 1 trillion euros, handing out 489 billion euros to 523 banks on December 21 and another 530 billion euros to 800 banks on February 29 at a current interest rate of 1 percent. The total new credit comes out to around 500 billion euros because banks moved some of their earlier borrowing from other ECB loan offerings to the two so-called longer-term refinancing operations.
The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe's shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.
But the 17-country currency bloc is still going through what is expected to be a mild recession that will complicate efforts to reduce the debt loads plaguing governments. ECB President Mario Draghi said the aim of the loans was to avoid a credit crunch that would choke off the finance that businesses need to expand and hire people.
Commerzbank economist Michael Schubert said the ECB's action would take time to feed through to the wider economy.
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