December 19, 2007 | posted by Michael Baxter in Banking, credit crunch |

Last week the central banks of the US, UK, Eurozone, Canada and Switzerland made the headlines when they announced plans to try and open up the money markets. If the markets are currently covered by a shell of uncertainty, the central banks’ plan amounted to using nut crackers to prise open this barrier. But yesterday, the European Central Bank (ECB) seemed to surprise all, as it took action that completely dwarfed the steps taken by the rest. It was the proverbial sledgehammer approach, but will even this be enough to crack the nut that is the credit crunch?

You may recall, the plan announced last week was for a cash injection of £50 billion, with the Bank of England throwing in £10 billion. But then, yesterday, the ECB took extra action which made last week’s plan seem like child’s play: in all it made a staggering 349 billion euros available or 25 times more than the amount the UK’s bank threw into the pot.

The Fed’s chairman Ben Bernanke, once said the solution to a credit crisis would be to scatter money from a helicopter. Well, yesterday’s move from the ECB was more akin to carpet bombing. Maybe Helicopter Ben is going to be trumped by the ECB’s top man, Jean-Claude Trichet, who, from now on, we’re going to call Airbus Jean.

And the action appeared to work, with the three-month euro London Interbank Offered Rate (Libor) seeing the biggest fall in six years.

Interbank rates are still way above official banks rates, but the gap is closing.

Actually, it’s all quite ironic.

Although there are countries in the eurozone where debt is a problem, it is the US and UK where debt threatens to crush economic growth. Of the three, the eurozone is the region which is supposed to have the best growth prospects for next year although inflation has been moving upwards.

Yesterday also revealed that the Eurozone’s balance of payments seems to be in fine shape with, growth in exports out stripping growth in imports. In fact, October saw a 4 billion euros trade surplus for the region in October, with exports up 10.6 per cent on a year ago, and imports up 7.8 per cent. Good news, in a sea of troubles.

It seems that the ECB is determined that the eurozone is not going to have its long awaited success derailed because of reckless Anglo Saxon borrowing.