Debt Crisis: US rescue act is a sign of the mess we’re in
For the eurozone, it was another humiliating turn of events. Faced with Europe’s abject failure to sort out its own mess, the US Federal Reserve has been forced to come riding to the rescue instead.
By Jeremy Warner
30 Nov 2011
It wasn’t quite D-Day – Europe is going to require much bigger solutions than the quite limited band aid offered yesterday by the world’s most powerful central bank – but it was the first bit of positive news the single currency has had for some time.
What’s essentially happened is that the Federal Reserve has agreed to step in and provide the cut-price dollar funding to eurozone banks which markets, fearing the worst about the future of the euro, have been refusing.
This funding strike was in turn threatening a second credit crunch, and another cataclysmic collapse in economic activity, with banks calling in their loans wholesale. Indeed, Downing Street said last night that the second credit crunch is already with us.
The move came as key measures of financial stress soared off the scale to some of their highest levels since the Lehman insolvency of three years ago.
Things have come to such a pass that almost any sign of movement by the authorities as the eurozone plunges headlong back into recession is counted a blessing.