Skip to comments.Eurozone crisis drying up credit to households
Posted on 11/28/2012 5:33:05 AM PST by DeaconBenjamin
FRANKFURT: Bank lending to private households in the euro area, which has practically dried up in recent months, contracted again last month in face of the region's crippling debt crisis, European Central Bank (ECB) data showed on Wednesday.
Eurozone bank loans to the private sector declined by 0.7per cent in October compared with the level in the same period last year after already shrinking by 0.9per cent the previous month, the European Central Bank said in a statement.
President Mario Draghi has said that weak lending to the private sector reflected a pessimistic view of eurozone growth prospects and heightened risk aversion amid the crisis.
In a bid to boost lending in the embattled 17-member bloc, the ECB offered banks more than 1.0 trillion euros ($1.3 trillion) in ultra-cheap long-term loans but the operation appears to have been less effective than Draghi hoped.
The ECB also published eurozone money supply data, which suggest the money supply -- a key guide to future inflation -- is growing more strongly than expected.
Growth in the M3 indicator, which measures the amount of money in circulation and deposited with banks, picked up unexpectedly sharply to 3.9per cent in October from 2.6per cent in September.
Analysts surveyed by Dow Jones Newswires had expected a more modest pick-up in growth to 2.8 per cent. The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.
It’s the public sector debt that endangers these economies, and it’s squeezing out the private sector which possesses the only means of financing the debt. I’m sure Paul Krugman will opine that it’s OK, but all other economists with real brains who live on a planet with a blue sky know it’s not going to end well.
Get ready for a discussion of “public option banks”
Seems like a very small drop... could be any number of reasons - fewer applications, fewer qualified borrowers. Without an analysis of why the loans decreased this is just drama.