ECB provides 530bn euros of cheap loans for banks

The ECB hopes the loans will ease the eurozone debt crisis

The European Central Bank (ECB) has provided a further 530bn euros ($713bn; £448bn) of low-interest loans to 800 banks across the European Union.

It is the second time the ECB has offered such three-year loans and comes after 489bn euros was lent in December.

The loans are aimed to help continue to ease the eurozone debt crisis, and help banks improve their liquidity.

They have also helped countries such as Italy, as some banks have used the bonds to buy government bonds.

‘Unprecedented expansion’

Although the ECB has not revealed which banks have taken part, UK lender HSBC confirmed to the BBC that it had borrowed about £350m.

Lloyds Banking Group also confirmed that it had drawn £11.4bn.

The markets appear to have welcomed the announcement, with banking shares rising strongly.

In Germany, shares in Commerzbank were up 3.6% while Deutsche Bank was 1.7% higher.

Credit Agricole saw the biggest gains in France, climbing 4.5%, followed by Societe Generale, which rose 2.3%.

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Whether it will do anything to cheer up Europe’s real economy is much less clear”

Stephanie Flanders Economics editor

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In the UK, shares in Barclays were up 1.7%, while HSBC added 0.6%.

Commentators said that the amount of money lent, and the number of banks which had taken part, was in line with expectations.

Banking analyst Luca Cazzulani of Unicredit said: “This will increase the level of excess liquidity pretty sharply, which is ultimately positive or very positive for risk trades.

“Italian and Spanish bonds are likely to benefit from this and equity markets as well.”

BBC business editor Robert Peston said the central bank’s move represented “a massive, perhaps unprecedented, expansion of the ECB’s balance sheet”.

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Greece holds crucial talks over EU bailout plan terms

Austerity measures have already hit the living standards of many Greeks

Greek PM Lucas Papademos is set to meet the party leaders of his coalition to try and win support for a proposed 130bn euros ($171bn; £108bn) EU rescue.

Mr Papademos wants their backing for reforms demanded by the IMF and EU as a condition of the bailout.

Eurozone ministers had hoped to meet on Monday to finalise the bailout, Greece’s second, but that meeting has now been cancelled.

The money must be in place by mid-March if Athens is to avoid a debt default.

It is hoped Mr Papademos can reach a deal with party chiefs by Sunday night.

“The moment is very crucial,” said finance minister Evangelos Venizelos on Saturday.

“Everything should be concluded by tomorrow [Sunday] night.”

Athens faces loan repayments to private lenders of 14.4bn euros ($19 billion) on 20 March.

The BBC’s Mark Lowen, in Athens, says Greece cannot afford to lose the bailout package and a lot now rides on these talks.

But, our correspondent says, that with potential elections in April, the parties in Mr Papademos’ coalition are wary about being seen to be associated with the austerity measures being demanded by the EU.

‘Great pressure’

EU officials have expressed frustration with Greece over delays in backing the terms of the latest rescue package, which is being put together by the European Union, the International Monetary Fund and the European Central Bank – the so-called “troika”.

“There is great impatience and great pressure not only from the three institutions that make up the troika but also from eurozone member states,” said Mr Venizelos, after what he described a “very difficult” conference call with his eurozone counterparts.

Reforms that international lenders want to see include a lower minimum wage, the removal of a “13th and 14th month” extra salary which is paid to workers as an annual bonus, and the liberalisation of workplace regulations.

Opponents say that more cuts will worsen living conditions which have already been affected by two years of austerity measures.

Unless Greece promises to implement reforms, the eurozone ministers say Greece will not be able to go ahead with a plan to restructure its privately-held debt.

Greece has prepared a debt plan with private creditors to halve the value of Greek debt and in return receive new, 30 year bonds with an average interest rate of less than 4%.

The restructuring is to help cut Greek debt to 120% of GDP in 2020 from 160% now.

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Bank shares lift European stock markets

Market Data

Dow Jones	12616.52	Up	37.57	0.30%
Nasdaq	2792.33	Up	22.62	0.82%
FTSE 100	5741.15	Up	38.78	0.68%
Dax	6416.26	Up	61.69	0.97%
Cac 40	3328.94	Up	64.01	1.96%
BBC Global 30	5911.49	Up	27.59	0.47%

Marketwatch ticker

Data delayed by 15 mins

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Bank shares have lifted European stock markets amid hopeful economic signals, results from US banks and a report suggesting the ECB was providing more loans to banks than had been thought.

Successful French and Spanish bond auctions and falling US unemployment claims all helped improve sentiment.

Bank of America and Morgan Stanley’s results were better than expected.

Commerzbank shares rose 15% after it said it would be able to increase its capital without government help.

Also in Frankfurt, Deutsche Bank rose 8%.

In London, Barclays shares rose 10% while Lloyds and RBS were both up 9%.

In Paris, Societe Generale rose 13%, Credit Agricole rose 9% and BNP Paribas gained 8%.

The soaring bank shares helped Europe’s benchmark indexes to strong closes, with the FTSE 100 ending up 0.7% at 5,741 points, its highest closing level since the start of August.

The Cac 40 in Paris closed up 2% while the Dax in Frankfurt gained 1%.

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It represents slightly more substantial sticky plaster for the eurozone than many investors may have believed was being applied.”

Robert Peston Business editor, BBC News

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Some of the gains in banking shares were sparked by a report from Morgan Stanley, which said that the European Central Bank was flooding the eurozone banking system with even more cheap loans than had previously been thought.

“Perhaps more significantly, Morgan Stanley thinks that financial regulators and the ECB are together conspiring to give incentives to banks to use much of this cheap cash to buy government debt, especial Italian and French sovereign debt,” said BBC business editor Robert Peston.

“Or to put it another way, the ECB doesn’t want to be the lender of last resort in a direct sense to a government struggling to borrow such as Italy. But it is happy to lend to Italy when mediated by Italian banks, even when those banks aren’t the strongest on the planet.”

Energy costs push German inflation rate up to 2.3%

Energy prices, including motor fuels, rose 10% in the year

Rising energy prices pushed German inflation up to 2.3% in 2011, according to official figures from Destatis.

The inflation rate compares with 1.1% in 2010 and 0.4% in 2009. It was the highest annual figure since 2008, when inflation was 2.6%.

It takes Germany outside the European Central Bank’s target rate for eurozone inflation, which is close to, but below, 2.0%.

Excluding energy prices, inflation would only have been 1.3%.

Energy prices, including motor fuels, rose 10% in the year. Motor fuel and heating oil prices alone rose 13.9% in the year.

The figures come on the day of the European Central Bank’s latest monthly interest rate decision.

Rates are expected to be left unchanged at 1.0%, following two consecutive months of cuts.