Debt Crisis Nations Rely On Loans From ECB

Banks in Greece, Portugal, Ireland and Spain account for more than two-thirds of the increase in lending to eurozone financial institutions by the European Central Bank since the summer of 2008 as many struggle to access financial markets, the Financial Times reported. The heavy reliance of these banks on the ECB for funding is a sign of the growing stresses in the eurozone as investors and other banks refuse to lend to them because of fears that the debt crisis in the 16-nation bloc will deepen. Banks in the four countries have borrowed €225bn ($277bn) of the €332bn increase in lending since June 2008, according to the Royal Bank of Scotland, which compiled the information from eurozone central banks. This is 68 per cent of the rise in lending, yet these countries only represent 18 per cent of the eurozone’s gross domestic product. The ECB has never given a geographical breakdown of where the liquidity it provides has flowed. News that its help has been concentrated in just a few countries could prove awkward politically for the Frankfurt-based institution if it leads to accusations that ECB policies are unfairly supporting southern European financial institutions. Nick Matthews, an economics analyst at RBS, said: “This is a sign of the stress in the system. Banks do not want to lend to each other in this climate, which means many have to turn to the ECB.” Don Smith, economist at Icap, added: “Without the ECB, the banks would be in real trouble. There are very real liquidity problems. This is all about the eurozone debt crisis and the little confidence investors have in the most indebted countries.” Read more. (Subscription required.)