Jan 30 (Reuters) – A bank-led credit crunch, a newly strong
euro and the shrinking of the European Central Bank’s balance
sheet are tightening conditions in the euro zone at just the
This should heighten pressure on the ECB to cut rates or
take other measures when it meets next week. Just don’t count on
the central bank doing much.
A confluence of forces, some positive, are combining to
effectively tighten financial conditions in the euro zone, even
as the continent struggles with unemployment and recession.
Healthier, more stable banks are repaying longer-term funds
borrowed from the ECB, an encouraging development but one which
has as a side effect higher market interest rates.
At the same time, banks continue to be fearful and stingy
about making loans, both to consumers and businesses.