Banks in Troubled Countries Close to Exhausting Money Injected to Ease Crisis

Europe’s bold program to defuse its financial crisis by injecting cash into the banking system is running out of steam. The European Central Bank’s roughly €1 trillion ($1.31 trillion) of emergency loans caused interest rates of troubled euro-zone countries to plummet earlier this year, easing fears about Europe’s debt crisis. But lately rates have again been marching higher. One big reason: After months of using that cash to buy their government’s debt, banks in Spain and Italy have little left, say analysts and other experts. The banks’ voracious buying had helped bring down the interest rates, providing relief for troubled countries that need to issue tens of billions of euros of bonds this year. But the banks, lately the primary buyers of Spanish and Italian government bonds, no longer have much spare cash to continue such purchases. That is sending rates back up, rekindling investor fears about Europe’s ability to arrest the three-year-old sovereign-debt crisis and return the region to health.
By Charles Forelle and David Enrich, April 18, 2012 WSJ

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WSJ: 04/18/12