On 18 June, it was Christmas ahead of time: the European Central Bank (ECB) announced that it was offering 1 to 1.5 trillion euros in long-term loans (three years, ‘TLTROs’) to European banks at an interest rate of -1%. In the end, 1.3 trillion euros were granted. It is important to understand what a negative interest rate of 1% means: The ECB will pay the banks to borrow money from it. It will lend them 1.3 trillion and, on top of that, it will pay them 13 billion in interest over the next twelve months. It’s as if your banker gives you money to borrow from him. You could then let the money lie dormant and pocket the money (the interest) without doing anything... the world upside down!

Finance is walking on its head but, according to the ECB, it's for the right cause since it's about supporting credit. The ECB is subsidizing credit to businesses in order to get out of the coronavirus recession as quickly as possible. But the reality is not really this: as a UBS analyst explains, these long-term loans will mainly be used to pay back old ECB loans, the maturing TLTROs (for 810 billion euros). So there will only be 500 billion in new money (FT). A substantial sum, of course, but it is already far from the starting figure. We're mostly dealing with the cavalry (new loans to repay old ones)!

All the more so as the banks do not really need this boost, since the governments have offered their guarantee on loans to companies for large amounts (€550 billion for Germany, €400 billion for Italy, €300 billion for France, €112 billion for Spain). The ECB is not fooled, moreover. For the previous TLTROs, the banks had to prove that they had increased their loans to the economy, but now all they have to do is maintain it at the level it was at before the coronavirus crisis .

The reality is that this money is mainly used by banks in difficulty, with a lack of liquidity, which are experiencing structural difficulties. In fact, the biggest demand for these long-term loans before June 18 was from Italian (29.3%), French (24.4%), Spanish (18.3%) and German (12.2%, see Eric Dor) banks. A mapping of banking deficiencies, with those facing numerous defaulted loans (Italy, Spain), the highly leveraged megabanks (France, Germany), some of which have been wading in restructuring for years (Deutsche Bank).

This is the real aim of the ECB, with its €1.3 trillion in loans offered as a surprise gift (making money by borrowing): to save the European banking system. 'Supporting the economy' is just communication.

By rolling over the debt of ailing banks (new loans to pay off old ones), the ECB is giving them a very bad habit, namely that of governments with perpetual deficits, which are thus exempting themselves from any budgetary effort. What is the point of cleaning up one's balance sheet if the ECB graciously provides the necessary liquidity? The intrinsic situation of the large European banks is therefore not going to improve, at the greatest risk to savers...