Eurozone bank lending keeps on contracting

THOUGH the Eurozone’s 18-month recession officially ended in the second quarter of this year, bank lending is still shrinking, down 1.9 per cent in the year to July.

The decline in lending is the fastest in the Eurozone since the beginning of the single currency.

Yesterday’s figures, released by the European Central Bank (ECB) also showed that the euro area’s money supply, measured by M3, grew at 2.2 per cent, slowing down from 2.4 per cent in June. Before the financial crisis, annual growth in the money supply was almost always over five per cent.

James Howat of Capital Economics commented: “The contrast between the deterioration in the Eurozone’s monetary data and the pick-up in the real economy reinforces our belief that this upswing will not be strong enough to solve the region’s debt crisis”.

Gael Gunubu of Deutsche Bank took a similar interpretation: “In general economic recovery potential will be limited without bank balance sheet expansion”.

The ECB has suggested that until the underlying economic situation improves, it is likely to hold interest rates at their current low level.