ECB resumes dollar loans to eurozone banks

ECB resumes dollar loans to eurozone banks
Photo: DPA
The European Central Bank in Frankfurt on Tuesday resumed loans of US dollars following an agreement with the US Federal Reserve that is part of a massive EU plan to save the euro.

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.

“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.

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