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    Money market squeeze could be easing: ECB chief economist

    AFP
    21.10.2008 - 13:27 | Son Güncelleme:

    European Central Bank chief economist Juergen Stark noted on Tuesday some improvement in critical interbank money markets, but warned he could not rule out more banking sector "accidents."

    "We see a slight improvement, a slight easing on the interbank market, but not yet a breakthrough," Stark told German radio DeutschlandFunk in an interview.

    He warned that "a serious risk remains that we will face other accidents" in the shaken banking sector.

    "We find ourselves in a context of extremely high uncertainty," Stark said, while adding that "we are in a better position to deal with fresh surprises."

    The ECB and other central banks have injected huge amounts of the world leading currencies into critical money markets to get banks lending to one another again, following a crisis sparked by the bankruptcy of U.S. investment bank Lehman Brothers in mid September.

    Such injections of cash began shortly after the U.S. market for high-risk, or subprime, mortgages collapsed in July-August 2007.

    "We will continue to do so for as long as necessary," Stark said, voicing an assurance made repeatedly in ECB statements.

    He also expressed hope that bank rescue plans established in many countries around the world would reestablish the confidence needed between commercial banks to ensure smooth functioning of markets on which business credit depends.

    The money markets determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

    On Tuesday, the ECB set at roughly 400 billion euros ($530 billion) the amount of euros and dollars it will pump into eurozone money markets in the next two days.

    UBS economist Stephane Deo also said that "the money markets, although far from operating normally, are trending in the right direction."

    When asked if the worst of the financial crisis was over, Stark said simply: "I hope so."
      
    The Lehman Brothers failure was followed by the near bankruptcy of several European banks like Fortis, Dexia and Hypo Real Estate, which were only saved though concerted state intervention.

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