EU officials seek to dispel fears of credit crunch

Sat Sep 17, 2011 9:27am EDT
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By Eva Kuehnen and Leigh Thomas

WROCLAW, Poland (Reuters) - EU officials sought to dispel fears about a bank lending freeze on Saturday, despite a stark warning from senior aides that a "systemic" crisis in sovereign debt now threatened a new credit crunch.

Last week, central banks around the world announced they would work together to offer extra loans in U.S. dollars to banks, a move designed to prevent money markets from freezing up in the wake of Europe's sovereign debt crisis.

European banks are struggling to borrow amid growing alarm about the threat of a Greek debt default among U.S. money market funds and other traditional dollar lenders. European bank stocks have tumbled by a third since July.

But on Saturday, EU officials sought to smooth over the difficulties.

"The situation ... is not worrisome," Luxembourg's Finance Minister Luc Frieden said on Saturday ahead of a meeting of finance ministers. "All the instruments are in place to make sure the financial system continues to work properly.

Andrea Enria, the head of EU banking watchdog the European Banking Authority, said measures to provide dollar funding to banks had been necessary.

"Central banks are doing a lot to provide liquidity," he said.

But behind the closed doors of the meeting, attended by German finance minister Wolfgang Schaeuble, a series of bluntly worded reports prepared by officials told a different story.   Continued...

<p>Germany Finance Minister Wolfgang Schaeuble (C) talks with Eurogroup President Jean-Claude Juncker (R) and German central bank (Bundesbank) President Jens Weidmann as they pose with other European Union finance ministers for a family photo taking session during an informal meeting of the Economic and Financial Affairs Council (ECOFIN) in Wroclaw September 16, 2011. REUTERS/Kacper Pempel</p>