the ECB and the credit crisis

In beginning of August the ECB had to intervene in the European market for the first time because of the credit crisis which has her origin in the United States reached the European money market. The European central bank made an injection of 150 billion euros to keep the liquidity upright.
Furthermore the ECB has loaned 350 billion euros to avoid a liquidity crisis in the inter-bank market. With this step the ECB accomplished that short-term interest rates didn’t get as high as the long-term rates in the market. With these money injections the ECB tried to prevent a collapse of the stock markets and to minimize the spread of the credit crisis in the European market.
The European central bank 90 billion euros of loans available.
The main concern of the banks was and is that the inflation gets to high and they are trying to keep the rate as low as possible. The main goal of the ECB was to keep the interest rate low. The European central bank has done it with to raising the interest rate higher than 4 %. So the Fed raised the interest rate higher and didn’t give that high priority to the economic growth and this is a difference between the ECB and the Fed. But nevertheless the ECB has to count on changes and the bank tries to ensure the short term stabilization of the market instead of worrying about the medium term forecasts.

The ECB lent money to other banks or people without any limit or penalty the bank also guaranteed unlimited two weeks loans at the fixed rate of 4.21%. Normally the ECB fixed the amount that they are going to lend. And experts are no sure if this was the right respond to the crisis and the Fed thought about lending against mortgages. Even if central banks can produce unlimited amounts of money they are not really able to bring down the differences between the benchmark policy rates and the rates that each bank bills the other for short-term loans.

In January the director of the central bank said that another interest rate increase is possible and the director of the Fed said he would cut the rate because he fears recession. But till this point the ECB kept the rate at 4%.