Before stepping down, the president of the European Central Bank is buying another round for European banks. Trichet announced that the ECB would purchase mortgage bonds, grant 12-month loans and facilitate free lines of credit until June 2012.
All of which could give banks what they need just when they are fearful of lending to each other. Still, with 3% inflation in the Eurozone, Trichet did not think it was an opportune time to lower interest rates, something that could have make his successor Mario Draghi's work a lot easier.
While it is certain that a lower rate might not be significant given rates are near zero, if the economic crisis proceeds as it is right now the president will likely have to cut rates quickly, which could instigate a storm of critiques. Imagine a man from a peripheral European country deciding to cheapen money against Germany?s wishes.
In any case, the banks will not translate these funds to the real economy until they are recapitalized. In this sense, Merkel urged nations to repair their financial system, and it is deemed necessary that Salgado take action soon despite having finished a recapitalization process several days ago.
Ultimately, Salgado has devised a plan to get the amount he wanted for Loterías and all the guarantee of deposit funds from the Frob. Is he going to initiate another series of recapitalizations? It seems reasonable that the bank will pay, but not that the cooperatives will or that the savings banks will get much help. The exact total of the figures can be as important as the ECB not printing money, now without Trichet.
