ECB keeps liquidity flowing

EUROPEAN Central Bank (ECB) president Jean-Claude Trichet emerged victorious from his skirmish with markets yesterday, as stocks stabilised and the euro gained on the back of ECB announcements.

The ECB announced that it would continue its special liquidity programme that are keeping Europe’s banks out of default.

However, the Bank dashed hopes that it would restart the bond-purchasing programme that it launched in May after the bailout of Greece.

Trichet had raised expectations of further bond-buying by suggesting that the Bank was prepared to intervene in secondary bond markets, but no announcement was made on the subject during a much-anticipated press conference yesterday.

But markets shook off the disappointment yesterday.

The Eurostoxx 50 and the FTSE 100 both rose 2.2 per cent while the euro jumped to a high of $1.324 against the greenback. Banking stocks also gained: Barclays was up 2.6 per cent, Santander was up 5.1 per cent and BNP Paribas rose 1.5 per cent.

Many of Europe’s banks have becoming heavily reliant on the ECB’s special liquidity scheme: its net lending was equal in value to seven per cent of Portuguese total bank assets and 1.9 per cent of Spanish total bank assets in October, according to Deutsche Bank.