Debt Crisis: Central banks flood money markets with dollars
The world's central banks have decided on an action plan to help European banks by flooding the market with dollars.
The move boosted the euro and stock markets also gained on the move.
Many European banks have run into difficulties trying to borrow dollars to run their greenback based activities because US funds are refusing to lend to them on fears of the euro debt crisis.
The move was announced by the European Central Bank (ECB) today.
"The governing council of the European Central Bank has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year," the ECB said in a statement.
''These operations will be conducted in addition to the ongoing weekly seven-day operations announced in May 2010.
The announcement drove European bank shares higher while stock markets also gained.
Both Germany’s DAX and the French CAC were up over 2pc on the news.
Investors are banking on a solution to the euro debt crisis.
Meanwhile, the outlook for the European economy has deteriorated, European Union Economic and Monetary Affairs Commissioner Olli Rehn warned earlier.
As a result, the Commission has downgrade its growth forecasts for the EU to 1.7pc in 2011 while the eurozone figure remains unchanged at 1.6pc.
“This is largely owed to stronger-than-expected growth in the first quarter,” he said.
“However, the quarterly growth profile for the second half has been revised down considerably.”
Growth projections for the EU are now at 0.2pc in both the third and fourth quarter, 0.2pc in the third and 0.1pc in the fourth quarter for the eurozone, respectively.
As Greece teeters on a knife edge and fears are ongoing for other bigger economies like Italy and Spain, Mr Rehn said that risks of inflation are low meaning the European Central Bank is likely to keep interest rates low.
But growth risks still about in Europe, he added.
“Some of the downside risks considered in the Spring forecast have now materialised,” he said.
“In particular, the global economy has slowed down, and hopes that the sovereign debt crisis would gradually dissipate have been disappointed.”
Eurozone leaders meet in Poland today at a gathering that will be attended by US
European stock markets gained today after assurance from Germany and France that Greece will remain in the eurozone despite ongoing fears that it could default on its debts.
Eurozone finance leaders meet in Poland today at a meeting which will also be attended by US treasury secretary Timothy Geithner.
In a bid to calm markets, French and German leaders last night said the rescue programme outlined in its bailout for Greece was “indispensable” for the country’s economic recovery.