FRANKFURT, Germany ? The European Central Bank and the Bank of England are preparing to offer more emergency support to the financial sector in the hope of softening the impact of a looming recession and the government debt crisis.
Analysts expect the Bank of England to say Thursday that it will inject another 50 billion pounds ($79 billion) of new money into an economy that shrank at the end of last year.
Meeting the same day in Frankfurt, Germany, the European Central Bank is expected to trumpet the advantages of its second unlimited offering of cheap, three-year loans to be allotted to banks on Feb. 29.
Its president, Mario Draghi, will also likely be asked at his press conference whether the bank will help lighten Greece's debt loan by forgoing profits on euro55 billion ($72 billion) in Greek bonds it owns.
The ECB could do that by selling the bonds to the eurozone bailout fund for what it paid for them, and the fund could then write them down, lightening Athens' debt load.
Some analysts say the ECB isn't in principle opposed to such a move, but is holding back to not appear to be taking instructions from governments ? it is forbidden by the EU treaty to do that.
Neither the ECB nor the Bank of England is expected to change interest rates from their current record lows ? at 1.0 percent and 0.5 percent, respectively.
Rather, attention will focus on their outlooks, their attempts to push more money into the banking systems and the economy and the ECB's take on Greece's debt talks.
A first blast of cheap ECB credit ? euro489 billion ($641.23 billion)_ was taken up by 523 banks on Dec. 23. The step has been credited with calming some of the market panic from the debt crisis hitting the 17 countries that use the euro, and stocks and government bonds have risen since then. Analysts think the takeup could equal or exceed the first one, since the ECB has loosened collateral requirements.
Despite a remarkable easing in tensions on financial markets this year ? evident in the big drop in the borrowing rates of weak countries like Italy and Spain ? the eurozone and the U.K. face worrying signs from the wider economy.
The eurozone economy is widely expected to have contracted in the fourth quarter, while the U.K. shrank 0.2 percent in the last three months of the year. Many analysts predict both regions will fall into a technical recession ? defined as two consecutive quarters of negative growth ? by the end of March.
Both remain exposed to any sudden shock from the crisis in Europe over too much government debt ? financial volatility quickly causes credit to seize up, stifling economic activity.
A messy default by Greece, where talks to get a second bailout are days overdue but still unsolved, would threaten the integrity of the eurozone, shaking British and world markets as well.
Recent economic indicators for Britain and the eurozone have suggested things may pick up a bit in the months ahead, but big risks remain. Credit availability, crucial to help businesses expand and create jobs, appears to be dropping in the eurozone.
Analysts think the Bank of England will create new money to buy securities ? mostly British government bonds ? from private investors such as insurance companies and pension funds, on top of 275 billion pounds ($437 billion) it has already purchased.
The hope is that by increasing the amount of money in the financial system the purchases, known as quantitative easing or QE, will loosen credit for businesses and raise asset prices. Quantitative easing can be inflationary, but analysts say the bank has room to act.
Vicky Redwood, chief U.K. economist at Capital Economics, said inflation "is expected to fall some way short of target."
"Accordingly, we think the big picture will be that further QE is still needed," Redwood added.
The U.S. Federal Reserve, which has already done two rounds of quantitative easing, has raised the possibility of doing another round as well.
For its part, the ECB may remain in a holding pattern on interest rates for some time, barring a sudden financial disaster in Greece. The country's political leaders need to agree to tough austerity terms this week if Athens is to get more bailout loans in time to pay debts coming due March 20 and avoid default.
___
Robert Barr and Pan Pylas in London contributed to this report.
leap year pink martini 2012 predictions times square new years eve times square 2012 new years eve ball drop earthquake
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.