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ECB hawks spook debt markets
Date 30/09/2010 14:55  Author webmaster  Hits 991  Language Global

30 SEP 2010

Eurozone experts are increasingly worried that the European Central Bank (ECB) is moving too fast in pulling the prop from under the financial systems of Greece, Ireland, Portugal and Spain, risking a repeat of the premature tightening in mid-2008 that ended in grief.

By Ambrose Evans-Pritchard | Telegraph

A string of ECB governors have said this week that emergency support must be withdrawn soon, signalling a phasing out of the unlimited lending facilities that have acted as life-support for banks of high-debt states.

This puts the ECB on a very different tack from the central banks of the US, Britain, and Japan, which have abandoned "exit strategies" and begun to prepare for fresh quantitative easing as a precaution against a possible growth relapse. "The ECB seems set on a pre-ordained course, oblivious to other subtleties," said Julian Callow from Barclays Capital.

An ECB report on Wednesday said several EU banks are having trouble raising money on the wholesale funding markets and that some "remain overly reliant on credit support from central banks and governments, which continues to be a cause for concern."

The ECB's response to this worry has baffled investors. Jürgen Stark, Germany's hardline member of the ECB, said the bank is "in the process of phasing out some of the non-standard measures".

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