Markus Schreiber, Associated Press
FRANKFURT, Germany — The European Central Bank says the flow of credit to businesses grew more slowly in February — a sign that the bank's massive loans to the financial system have yet to kickstart a lagging eurozone economy.
Figures released Wednesday showed loans to nonfinancial corporations — a key credit indicator — grew by only 0.4 percent on an annual basis, down from 0.7 percent in January.
The ECB made two rounds of cheap loans to banks Dec. 21 and Feb. 29, adding about €500 billion ($666 billion) in net new credit to the financial system. The loans were introduced in the hope that the money would find its way to businesses and consumers as loans and, in turn, promote growth.
The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe's shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.
But the 17-country currency bloc is still going through what is expected to be a mild recession that will complicate efforts to reduce the debt loads plaguing governments. ECB president Mario Draghi says the aim of the loans was to avoid a credit crunch that would choke off the finance businesses — especially the smaller concerns which employ most people in the eurozone — need to expand and hire people.
Commerzbank economist Michael Schubert said the ECB's action would take time to feed through from banks to the wider economy but the central bank might not be too disappointed "as it probably expected the sluggish loan momentum to continue for some time."
Credit may also remain tighter than it otherwise would have because banks are under pressure from the European Union to increase their financial buffers against any future turbulence from the debt crisis that has seen Greece, Ireland and Portugal need bailout loans from other eurozone governments. Money held back to strengthen bank finances would make less available for loans.
Additionally, the second loan offering came only on the last day of February, too late to have an effect.
Draghi has also downplayed fears expressed by some economists that the loans will stoke inflation by increasing the supply of money in the economy. The loans only increase the money supply however when banks loan the money out and businesses decide to borrow — activity that remains subdued. The eurozone economy shrank 0.2 percent in the last three months of 2011 and the European Union's executive commission thinks growth will shrink by 0.3 percent this year.
The bank's statistics showed the rate of increase in the money supply increased in February, to 2.8 from 2.5 percent. That remains well below historical averages.
The ECB loaned just over €1 trillion, handing out €489 billion to 523 banks on Dec. 21 and another €530 billion to 800 banks on Feb. 29 at a current interest rate of 1 percent. The total new credit comes out to around €500 billion because banks moved some of their earlier borrowing from other ECB loan offerings to the two so-called longer-term refinancing operations.
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