Banks borrowed nearly half a trillion euros on the cheap from the European Central Bank yesterday but analysts were not convinced even that record amount would be enough to solve the debt crisis.
Some 523 banks took a record €489.2 billion on which the ECB will charge annual interest of just one per cent over three years.
Until now, the ECB has lent for a maximum of one year and the new arrangement is part of a series of unprecedented measures to keep credit flowing in Europe at a time when banks are increasingly wary of lending to each other due to the debt crisis.
Resisting intense political pressure to step in and save eurozone countries sinking under huge mountains of debt, the ECB insists its fire-fighting efforts are limited to acting as lender of last resort for banks only and not for governments.
The ECB has argued from the very beginning of the crisis that it is up to overspending governments to get their finances in order and restore the markets’ confidence in their ability to repay their debts, which is the underlying cause of the eurozone’s current ills.
Politicians and analysts, on the other hand, have repeatedly called on the ECB to do more – especially by buying up government bonds which amounts in effect to printing money for countries to repay their debt.
Christine Lagarde, head of the International Monetary Fund, warned Wednesday that the eurozone debt crisis was putting the global economy at risk and called for action.
The eurozone countries “are the centre of the crisis, they should and must be the centre of the solution,” Ms Lagarde said.
“If nothing is done, the crisis in confidence... and this sort of spiral of doubt, will just get worse in all countries... all the countries of the world will suffer the consequences without exception.”
The ECB has been engaged in buying up the sovereign debt of struggling eurozone countries to keep their borrowing costs down but insists that such action is and can only be “temporary” and “limited.”
At the same time, the bank has made it clear it is willing to provide unlimited support to the financial sector and last week, ECB chief Mario Draghi announced it was extending the maturity of its loans to ensure favourable rates of funding for banks over a much longer period.