…so that they can lend the money to other people who want to borrow because other people lent them too much money before. The eurobanks are full of money because the EBA thinks they don’t have enough money to withstand the backwash of ClubMed defaults, but none of the banks are lending money because they don’t trust other banks. So to help them out, the ECB is lending them cheap money so they can buy the bonds of the people they lent too much money to last time and who need more money now because they can’t pay the old debts back. But most of the money lent by the ECB goes straight back to the ECB because most of the banks are busy preparing for the EBA’s stress tests and they’re too scared anyway to buy too many more sovereign bonds. Meanwhile, the EU economy is in recession because the banks think it’s too risky to lend business money, because the economy’s in recession.
This is globalised capitalism in January 2012. Now do you understand?
Supporting evidence from today’s early news:
The IMF has asked for $500bn of new money to help stabilise the eurocrisis. Washington is unlikely to accede to the request.
The ECB’s 489 billion euros ($623 billion) of three-year loans are a lifeline for lenders competing with governments to borrow about $2 trillion this year as they seek to refinance maturing bonds and bills.