As European Nations Teeter, Only Lenders Get Central Bank’s Help

Is it time for the European Central Bank to be as generous to countries as it is to banks?

Since the beginning of the financial crisis, the E.C.B. has been lending euro area banks as much money as they want, trying to maintain the liquidity that is the lifeblood of the global financial system.

But because the bank has refused to offer the same service to countries like Italy, it is not confronting the euro area’s most fundamental problem. As a result, liquidity is drying up anyway.

In an atmosphere of mistrust reminiscent of the aftermath of the Lehman Brothers collapse in 2008, European banks are demanding higher interest rates for the overnight lending that is essential to keep money circulating. Some, fearing other banks’ vulnerability to the debt of Italy and other beleaguered countries, are refusing to make such loans at all.

Read Full Article from New York Times

- Posted: 2011-11-14 12:12:21

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