Euro tensions fade as banks repay ECB

In an unprecedented move a year ago, the ECB pumped more than 1 trillion euros (US$1.3 trillion) into the banking sector to avert a looming credit crunch in the 17 countries that share the single currency.

At the time, the ultra-cheap three-year loans — known as long-term refinancing operations or LTROs — were credited with marking a turning point in market sentiment towards the embattled euro.

The LTROs were launched in two batches, in December 2011 and February 2012 and both included provisions to allow early repayment after one year, with the first repayment window opening on Jan. 30, and the second on Feb. 27.

After that, repayments can continue on a weekly basis, depending on demand.

In a widely watched announcement on Friday, the ECB said that 278 banks would repay 137.16 billion euros of the first 489-billion-euro LTRO on Jan. 30.

That is much more than the 100 billion euros expected by analysts.

Some experts believe the magnitude of the repayments is a sign of the improved health of the financial markets as it suggests banks are enjoying better access to funding.

The euro certainly spiked higher on the news, rising to US$1.3436.

Nevertheless, other observers warn of possible problems further down the line if it emerges that only banks in the stronger core countries such as Germany repay the loans, while banks in still vulnerable, peripheral countries — such as Spain and Italy — become “stigmatized” for not being able to repay.

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