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Observers of the European financial scene cannot have overlooked a worrying anomaly. In recent years the Bank of England has been unhelpful to UK-based banks, whereas the European Central Bank has mollycoddled their competitors in the eurozone. The issue has come to a head with the ECB's latest exercise, the provision of three-year loan facilities at a cost of only 1 per cent to any bank with eurozone activities and half-decent collateral. In two so-called long-term refinancing operations (or LTROs) in December and February, the eurozone's banks have successfully applied for more than 1,000 billion euros of ECB money. This staggering total is higher than the national output of the Netherlands and more than four times that of Greece.

Plainly, Mario Draghi, who has been president of the ECB since November 2011, believes in the virtues of long-term central bank assistance to the commercial banking sector. Before the LTROs, dozens of Eurozone banks were having difficulty in funding their assets. Rather than call in loans, they sold government bonds. The resulting falls in the value of eurozone sovereign debt undermined confidence in the single currency project. With good reason, many commentators believed that the eurozone's break-up was imminent. 

Draghi's LTROs acted like a magic potion. In the weeks following the first LTRO, banks' sales of government bonds stopped and the eurozone sovereign debt crisis disappeared from the headlines. Moreover, the ECB's help has undoubtedly given a large number of troubled banks enough time to reorganise their affairs. While the ECB loan is outstanding, banks will earn profits on their good assets, boosting their solvency. Further, banks that have been short of cash in the recent period of market turmoil now have an extended opportunity to sell loan portfolios to banks with strong deposit resources. 

At the macroeconomic level, too, the ECB manoeuvre has had positive results. With the banking system (and hence the quantity of money) no longer at risk of shrinkage, forecasts are being made of a eurozone recovery later in 2012. The message of "the Draghi bazooka" (as the LTROs have become known) is that a long-term central bank loan can be of immense benefit to a banking system and so to the wider economy. 

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