Top European Central Bank officials countered criticism of stimulus measures, citing evidence that the efforts were already having a positive effect on the economy. The ECB minutes released this week, however, show that a minority of council members questioned the long-term effects of its targeted longer-term refinancing operations and decision to purchase corporate bonds.
European banks got a reprieve from negative interest rates with the launch of four targeted longer-term refinancing operations by which the European Central Bank will pay banks to borrow money. The Euro Stoxx Banks Index got a 3.7% bump after the announcement as stocks for all 30 of the banks increased.
The European Central Bank has added a net €35.7 billion in refinancing to help halt falling excess liquidity. Following the central bank's introduction of longer-term loans, government bonds rallied in 2011 as investors used the proceeds to buy higher-yielding assets.
Cheap money provided by the European Central Bank's two long-term refinancing operations cooled off Spain's borrowing costs, but the effect is fading and bond yields are climbing, according to The Economist. "The ECB could restart direct bond purchases: Benoit Coeure, a member of the bank's six-strong executive board, suggested on April 11th that it might, which helped push Spain's bond yields down a bit," the magazine notes.
European finance chiefs had planned to meet Oct. 18 to discuss the sovereign-debt crisis but postponed the meeting to Oct. 23. Tension is mounting between the European Central Bank, France and Germany over higher write-downs of Greek bonds. "Further elements are needed to address the situation in Greece, the bank recapitalization and the enhanced efficiency of stabilization tools," said European Council President Herman Van Rompuy. "This timing will allow to finalize our comprehensive strategy."