Central banks step in to help Europe with debt crisis
Steve Chiotakis: As we’ve said, the world’s biggest central banks — including the Federal Reserve — have announced a coordinated plan to inject cash — or liquidity — into the global financial system.
Marketplace’s Heidi Moore is with us from our New York bureau live to talk about it. Morning Heidi.
Heidi Moore: Morning.
Chiotakis: Liquidity injection — what is that and why is it necessary now?
Moore: Well, it’s not an actual medical procedure, but a lot of these European banks need dollars to do business — and they can’t get dollars. So what the Federal Reserve and the European Central Bank are doing, are they’re teaming up to make sure that all those European banks and companies can trade in their euros — which everyone doesn’t like and doesn’t want — for dollars, which they can do business in.
So the ECB is going to lend to them at a cheaper interest rate, which makes their lives much easier. And it keeps their economy going.
Chiotakis: So is this gonna work, Heidi?
Moore: Well, it’s questionable. As far as injections go, this is more like morphine. It’s just kind of a pain killer, but it doesn’t fix the cause. Liquidity injections like this — we’ve tried them before and they haven’t worked. But we do notice that whenever central banks lend directly into the economy — which is what’s happening now — that does provide a boost.
I talked to Guy Lebas at Janney Montgomery Scott to ask him what he thinks about it; this is what he said.
Guy Lebas: I think it’s more important because of what it signals than its actual impact. To us, this really signals that the European Central Bank is considering more extraordinary measures to support European banks.
And you’ve seen, the market is rallying today, which shows they’re happy that these banks are at least trying.
Chiotakis: Marketplace’s Heidi Moore in New York. Heidi, thanks.
Moore: Thank you.
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