ECB warns of a rollercoaster year ahead for eurozone

By Hugo Duncan

Last updated at 10:18 PM on 19th December 2011

Warning: ECB chief Mario Draghi

Warning: ECB chief Mario Draghi

The European Central Bank last night predicted ‘unprecedented’ financial pressure in the single currency bloc next year and warned of another recession.

ECB chief Mario Draghi said eurozone banks and governments will need to borrow huge sums of money in 2012 to stay afloat at a time when investors are worried about lending to the region.

‘So the pressure that bond markets will be experiencing is really very, very significant if not unprecedented,’ Draghi told the European Parliament in Brussels.

Debt-ridden countries such as Italy and Spain are finding it increasingly difficult to raise funds.

Lending between banks and to companies and households has also dried up as the eurozone credit crunch deepens. ‘We know that banks experience now and will be experiencing even more so a very significant funding constraint, especially in the first quarter of 2012. Not only then. The whole year is going to be a difficult year for the banks,’ said Draghi.

 

‘What we certainly want to avoid is that serious severe credit tightening that could induce a further slowdown of growth and a possible recession.’

European leaders are struggling to set up a big enough firewall around the single currency bloc to protect debt-ridden countries and shore up the banking system.

The ECB is under mounting pressure to step in and buy unlimited amounts of government bonds.

But central bank funding of governments is vehemently opposed by the ECB and Germany.

‘The ECB cares about financial stability a lot but it has to be done without weakening the credibility of the institution,’ said Draghi.

He said the euro was ‘irreversible’ and accused those outside the region who predict its collapse of ‘morbid speculation’.

 

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The only way the UK should lend money is if they want to borrow back the 20 Billion our Banks withdrew from French Banks it to lend it out in Stirling. If Italy wants 5 Billion lend it to them at 6% they then have to convert it to Euros and if a year later the Euro has devalued by another 10% they then have to convert it back to Pounds. If they dont like it, Tough. Switzerland is not in the Eurozone and I suspect that more than our 20 Billion has been moved out of Euros into Swiss Francs. That's reality, In the meantime the Eurozone leaders can dream on.

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Get those printing machines into action; and run off a few hundred billion Euros.

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A year ahead?Getting to March will be a success.

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