The European Central Bank (ECB) confirmed yesterday that the eurozone?s finances and economy are in serious trouble on two levels. First, after trimming their 2012 growth predictions so dramatically, the risk that the region would enter a recession the next year was not ruled out.
Second, because to fight against global economic cool down and the risk of the banking sector collapsing as it did during the Lehman Brothers fallout in 2008, the ECB?s arsenal of anticrisis measures unfolded like few times before.
The heaviest hitting ammo went to help the banks. This is where the new ECB president Mario Draghi earned the nickname ?Super Mario? after the famous Nintendo videogame character. He has adopted at least three initiatives with historical importance. First, he called for two financing deals via those who will grant three-year loans to the banks.
Up until now, he had not offered liquidity deals via twelve and thirteen month debt issues, an unprecedented decision. The first debt issue will take place on December 21 and coincide with the thirteen-month loan that is already set for this date. The second will take place on February 29.
Second, the ECB hit its minimum reserve coefficient for the first time. In other words, this is the hard cash that the financial firms should keep in their central accounts. The BCE reduced this amount from two to one percent. According to market sources, this decision could free up around 100 billion euros of liquidity for the banks.
Third, the institution softened financing requirements for lenders. Going forward, it will allow guaranteed debt with an A credit rating and will temporarily allow national central banks to grant loans to companies and clients as guaranteed means of financing.
