Leading Central Banks to Provide Additional Dollar Loans to European Lenders

The world’s leading central banks have agreed to provide additional dollar loans to European commercial banks that have found it harder to borrow because of their exposure to indebted European governments.

The European Central Bank said Thursday it will make three-month dollar loans to eurozone banks in coordination with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank. It says the new loans will provide the banks with as many dollars as needed until the end of this year.

The announcement gave a boost to European bank shares and major European stock indexes. The Frankfurt DAX index and the Paris CAC-40 index closed up three percent, while London’s FTSE-100 index ended two percent higher.

German and French backing for the struggling Greek economy also lifted the markets, reassuring investors that Athens will not be defaulting on its debts anytime soon.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said Wednesday they believe Greece should remain an integral part of the 17-nation euro zone despite amassing huge debts that forced Athens to seek emergency funds from its EU partners and the IMF.

The debt crisis in Greece and other EU nations has dampened economic growth across the eurozone. A European Commission report issued Thursday predicted that the overall economy of the 17 nations will slow to a virtual standstill in the second half of this year. But, the Commission maintained its forecast of 1.6 percent growth in the eurozone economy in 2011, thanks to a stronger than expected recovery in the first half, particularly in Germany.

Ms. Merkel and Mr. Sarkozy were speaking to Greek Prime Minister George Papandreou in a 25-minute telephone call late Wednesday. Mr. Papandreou said Greece will meet its commitments to implement austerity measures in return for international assistance.

Eurozone finance ministers will meet Friday in Poland to discuss the Greek debt crisis. U.S. Treasury Secretary Timothy Geithner also will attend the talks. voa

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