European Loans Contracted Most on Record as Crisis Intensified
January 30, 2012, 1:37 PM ESTBy Jeff Black
(See EXT4 for more on Europe’s debt crisis.)
Jan. 27 (Bloomberg) -- Loans to euro-area households and companies contracted the most on record in December as the sovereign debt crisis damped demand for credit and banks tightened lending.
Loans to the private sector declined 0.7 percent from November, the most since records began in 1991, the European Central Bank said today. Loans grew 1 percent from a year earlier, the lowest rate since July 2010 and down from the 1.7 percent annual gain in November.
“The sharp moderation in annual growth in loans to the private sector in December, particularly the appreciable monthly fall in loans to businesses, will reinforce concern that credit conditions are now increasingly tightening and posing a mounting risk to already struggling euro-zone economic activity,” said Howard Archer, chief European economist at IHS Global Insight in London.
The ECB lent euro-area banks a record 489 billion euros ($640 billion) in December to ward off a funding squeeze caused by a worsening in the two-year-old debt crisis. ECB President Mario Draghi said on Jan. 19 that the three-year loans prevented a “serious funding crisis” and the benefits will become more apparent in coming months.
“Many banks are under pressure to increase capital buffers and that puts the brake on lending,” said Martin van Vliet, senior euro-area economist at ING Bank in Amsterdam. At the same time, “the ECB’s three-year refinancing operation has helped a lot and there are tentative signs of improvement in the real economy.”
The rate of growth in M3 money supply, which the Frankfurt- based ECB uses as a gauge of future inflation, fell to 1.6 percent from 2 percent. M3 grew 2.1 percent in the three months through December from the same period a year earlier, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.
The ECB will publish its quarterly bank-lending survey on Feb. 1.
--Editors: Matthew Brockett, Craig Stirling
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To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
