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Wednesday, June 30, 2010

cart before horse?

The front page of today's FT sported the headline, "Markets plunge on ECB loan fears", with €442bn worth of European Central Bank emergency one-year loans to the eurozone's ailing banking sector expiring today.

Only a thought, but wouldn't it have been wise to carry out and publish the results of those stress tests before pulling the plug on a banking sector that is struggling with liquidity?

Spain’s Finance Minister Elena Salgado, seems worried. "The ECB says it doesn't like governments telling it what to do. I simply say I hope on this occasion, as in others, the ECB will be aware of the needs of the Spanish financial system," she said.

Banks have borrowed less of the three-month replacement loans than expected, which is an encouraging sign. However, as Robert Peston notes, "Eurozone banks are still on welfare support."

The question is how many will go running back to the ECB or their governments after the EU's stress tests are carried out?

2 comments:

Gordon said...

It does make for a better view. Does this mean it's the usual cosmetic cover up?

Open Europe blog team said...

It's difficult to say for now Gordon but there are already fears that the EU's stress tests are not robust enough:

See the FT's Alphaville blog:

http://ftalphaville.ft.com/blog/2010/06/18/265776/sovereigns-not-included-more-on-europes-stress-tests/

The risk is that another potential credit crunch is simply put off for another day.