A helpful sign.
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September 15, 2011
E.C.B. Moves to Provide Extra Liquidity
By JACK EWING AND RAPHAEL MINDER
FRANKFURT — Major central banks around the world moved Thursday to remove doubts about the ability of European banks to borrow dollars, opening new lines of credit to institutions for longer periods than before.
The European Central Bank said it would allow banks to borrow dollars for up to three months, instead of just for one week as before. The E.C.B. said it was acting in coordination with the with the United States Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.
Shares of European banks, especially French banks, have sharply fallen in recent weeks amid reports that American money market funds have been reluctant to lend to them, because of fear they are vulnerable to losses on their holdings of Greek bonds.
Two of France’s biggest banks, Société Générale and Crédit Agricole, were downgraded a notch Wednesday by Moody’s Investors Service.
Stock markets in the United States and Europe jumped after the announcement.
The new liquidity moves will be in addition to the E.C.B.’s current weekly dollar swaps, the bank said.
The E.C.B. action came on the same day that Spain pulled off a successful — if expensive — bond sale, and a top official of the E.C.B. rejected criticism from Germany that the bank has exceeded its authority by aiding Greece and other beleaguered countries in the euro area.
A day after the leaders of France and Germany promised to support Greece’s continued membership in the currency bloc, the German Chancellor, Angela Merkel, adopted a scolding tone, telling indebted countries to “do their homework.”
Appearing at the Frankfurt Motor Show, Mrs. Merkel promised that Germany would defend the euro, but insisted that troubled countries are still responsible for tackling their own problems.
“It is in our fundamental interest, as the largest economy in Europe, to make our contribution in order to ensure the future of the euro,” she said. But she rejected what she called a “debt union” in Europe.
Speaking in Rome, Lorenzo Bini Smaghi, a member of the E.C.B. executive board, said it would be a mistake to leave countries at the mercy of financial markets, which he said are not functioning properly anyway.
He said criticisms of the bank are “the result of inadequate economic analysis, of insufficient knowledge of the crisis in which we find ourselves and of anxiety resulting from experiences in the distant past that are not relevant to the current situation” — an apparent reference to the hyperinflation of the 1920s, which still influences German attitudes toward price stability.
His comments were thus an implicit riposte to German critics who have accused the E.C.B. of betraying its mandate by buying government bonds of Greece, Italy, Spain and other euro area countries to help control their borrowing costs.
Disagreements about E.C.B. crisis policy broke into the open last week after Jürgen Stark, the only German member of the E.C.B. executive board, last week unexpectedly said he would resign. Mr. Stark was a well-known opponent of the bond purchases, which he saw as improper interference by the E.C.B. in government finances.
In his speech, Mr. Bini Smaghi lowered expectations that the bank might take more radical steps to contain the sovereign debt crisis. Some economists have said the E.C.B. should effectively print money to prevent deflation and a downward spiral caused by government austerity programs and slower growth in the indebted countries.
In a clear response to Germans who say the bank has gone too far already, however, Mr. Bini Smaghi said that there is no evidence that “any of the interventions implemented have undermined the ability of the E.C.B. to maintain price stability in the euro area in the years to come.”
Mrs. Merkel said that Germany has a “duty and responsibility to make its contribution to securing the euro’s future.” But, in a statement that could reinforce perceptions that political leaders are determined move at their own pace and not be driven by financial markets, she said that stabilizing the euro area “won’t happen overnight or with any one-time thunderbolt.”
She once again rejected proposals for euro bonds, or debt backed jointly by all 17 euro-zone nations.
nytimes.com |
