Brussels, 10/10/2008 (Agence Europe) - The declaration adopted after the mini-summit between the European members of the G4 and the conclusions of the Ecofin Council welcome actions carried out since the start of the crisis by the European Central Bank (ECB) to support the banking system. This mark of approval was awarded for its repeated cash injections, but also for its action on eurozone interest rates. The ECB is doing all it can and it is doing it well, according to many observers, who are hoping to see the same determination on the part of other European players. In particular, this is the opinion of BusinessEurope, which welcomed the drop in rates decided upon in concert last Wednesday, and which now calls upon the European Council to undertake a similar commitment, that of "collective responsibility".
The operations of the ECB to relieve monetary tension started some time ago, with the first signs of financial turbulence last year (an initial overnight cash-injection operation of a sum of €94 billion was made on 9 August 2007). Basically, the ECB has been making major sums available to the markets for more than a year, but its operations have been stepped up considerably since the American bank Lehman Brothers collapsed on 15 September.
Due to the particularly high risks of bankruptcies, commercial banks are currently extremely reluctant to lend each other money. In order to prevent the market from asphyxiating, the ECB has been forced to open up additional lines of credit. This has been done particularly via standard operations, which take place at regular intervals and which all have identical maturity schemes (seven days for principal re-financing operations and three months for longer-term refinancing operations), but more recently several extraordinary operations have been carried out.
A summary adding up the sums made available recently would mean little (the money lent by the ECB is returned with interest after the fixed term, in order that it can then be reinjected, and so on), but the amounts proposed and actually lent illustrate the recent intensification of the project. In order to respond to market demand (which is often higher), it made €120 billion available on 30 September, for example (compared to 50 billion for its most recent previous bi-monthly operations) and on 9 October, offered 50 billion with a six-month maturity deadline.
In parallel to these operations in euros, the ECB has also increased its calls for tenders in dollars as part of concerted actions with the other major world central banks. By means of "swap" agreements with the Federal Reserve, which allow various central banks to lend each other money in order to stabilise the financial system in their respective zones, the ECB can use dollars to re-finance the European commercial banks, which need to be able to respect their contractual obligations in American currency.
For two weeks now, the ECB has been carrying out overnight operations in dollars on a daily basis and has just published a timetable stating its intentions for the fourth quarter of the year (for all operations of 28 and 84 days). The pace of operations and the volumes in question are considerably higher than usual. Having made available $370 billion in the first nine months of the year, it plans to issue a further 240 billion between now and the end of the year.
These are "highly impressive" figures, said Jean-Claude Trichet after the latest Eurogroup meeting, pointing out in particular that the ECB was "prepared to provide the market with all the cash it needs, for as long as it needs it". (A.B./trans.fl)