Increased access to dollars no long-term fix for Europe's financial crisis

A worker cleans the paint-splattered entrance of the Bank of Greece as university students carry their flags after a protest in central Athens on Thursday. Greece’s Cabinet met Thursday to discuss a new round of austerity measures.

Associated Press

A worker cleans the paint-splattered entrance of the Bank of Greece as university students carry their flags after a protest in central Athens on Thursday. Greece’s Cabinet met Thursday to discuss a new round of austerity measures.

LONDON — Five central banks acted Thursday to shore up confidence in Europe's financial system by giving its banks far greater access to U.S. dollars.

The move buys time for banks that hold large amounts of debt issued by Greece and other financially troubled European countries. Some of these banks have had trouble paying for daily operations because other banks have refused to lend to them any more. Under Thursday's action, the banks can borrow unlimited dollars for three months, up from the current one-week limit.

The European Central Bank said it will coordinate with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to offer the loans through the end of this year. Their move to supply more dollars is similar to steps taken during the 2008 financial crisis and again in May 2010.

The news reassured stock markets, which have been battered by rumors that banks' losses on their loans to Greece might sink them. Stock indexes in France and Germany each surged 3.1 percent.

Analysts cautioned that the expanded credit line for dollars isn't a long-term solution to Europe's debt crisis. Greece still appears likely to default on its debts. If it did, some banks could topple. Panic might spread among global investors.

Yet the coordinated effort is intended to prevent Europe's debt crisis from derailing the global economy's rebound from recession. That topic will dominate talks between U.S. Treasury Secretary Timothy Geithner and his European counterparts at a meeting in Poland today and Saturday.

Daniel Alpert, managing partner at the New York investment bank Westwood Capital LLC, said the move allows European policymakers to work through the end of the year to prevent a Greek default from upending the global financial system.

Increased access to dollars no long-term fix for Europe's financial crisis 09/15/11 [Last modified: Thursday, September 15, 2011 11:30pm]

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