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ECB resumes dollar loans to eurozone banks

AFP/The Local · 11 May 2010, 17:37

Published: 11 May 2010 17:37 GMT+02:00

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The ECB loaned $9.2 billion (€7.2 billion) to seven eurozone banks at a fixed rate of 1.22 percent, a statement said.

Central banks in several countries agreed over the weekend to swap currencies for dollars provided by the Fed to ease tension on interbank lending markets caused by the eurozone debt crisis.

On Monday, the ECB announced several measures aimed at financial markets, including the resumption of six-month loans in euros and the purchase of public debt, something it had refused to do until now.

The exceptional moves were part of a larger plan drawn up by the EU and the International Monetary Fund to help troubled troubled eurozone countries worth up to €750 billion.

The dollar loans were agreed upon after it became more difficult for eurozone banks to obtain the US currency owing to reluctance on the part of US banks to lend it, economists said.

The procedure was also used following the collapse of the US investment bank Lehman Brothers in September 2008.

Axel Weber, the head of the Bundesbank, said on Tuesday a European Central Bank decision to buy government debt was appropriate given the eurozone's debt crisis but warned it also carried substantial risks.

"I see this part of the governing council's decision critically, even in this extraordinary situation," Weber told the German financial daily Börsen Zeitung.

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"It's important to keep these risks as slim as possible," stressed Weber, who is a leading candidate to succeed Jean-Claude Trichet as ECB president next year.

The ECB said early Monday that it would intervene in securities markets to buy government and private debt, a move that represents unprecedented and controversial support for troubled eurozone governments.

While providing critical breathing space for eurozone countries that face mounting problems getting financing on private capital markets, the decision raises questions about the the ECB's independence from political influence.

AFP/The Local (news@thelocal.de)

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Your comments about this article

13:23 May 12, 2010 by cobalisk
"While providing critical breathing space for eurozone countries that face mounting problems getting financing on private capital markets, the decision raises questions about the the ECB's independence from political influence."

The notion that central banks can operate outside of politics has been dead for some time. Never more than now is it illustrated that governance and financial regulators must work together. The 'Greek crises' beginning in a country that is a tiny portion of the Eurozone, cascading to drag down the entire currency through hedge fund dumping and currency short selling illustrates very clearly that 'free markets' are never actually free. Either they are regulated to some degree by government for the stability of the state or they are regulated by the monopolies that inevitably grow within them. A 'Free market' spawns monopolies over time, choking competition and consolidating control in private hands on an unprecedented scale. By contrast a reasonably regulated market can achieve a broader more diverse functionality, thus attaining a greater measure of stability and prosperity, the so called 'Third Way'.
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