Credit Crunch II has arrived - No 10

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Credit crunch II has arrived, bringing with it emergency measures from six central reserve banks to free up debt stress. The rumour mill yesterday didn't help, with whispers that a major European bank was on the skids. Co-ordinated action from several banks helped markets recover earlier losses, but it's a sticking plaster, at best.

The fundamentals - too much debt just about everywhere - remains.


Twist again

"We are experiencing a credit crunch," a Downing Street source told the Telegraph, "and that central bank action is about trying to mitigate the effects of that credit crunch. They are ensuring they have the capacity to take action."

Interestingly, there is less (seemingly) German resistance to European Central Bank (ECB) involvement to bolster the euro via the International Monetary Fund (IMF). "We are prepared to increase the resources of the IMF through bilateral loans. Naturally, the details would have to be discussed. Naturally, it is the central banks in the end," said Wolfgang Schäeuble, the German finance minister yesterday.

Paid for by you

So another potential roadblock out of the way (though paid for by European taxpayers). But markets this morning are failing to maintain yesterday's bout of optimism, fuelled by central bank support. And ECB boss Mario Draghi has said this morning that ECB bond purchases will be "limited". Just when you thought the Germans were beginning to ease up...

The German/ECB position is significant. The ECB was designed closely on the German Bundesbank model which follows a strong fiscal discipline line at almost any cost. More quantative easing, the Germans worry, simply encourages further bad behaviour. That's why Draghi appears to want to help, but keep the help on a tight leash.

In reality, the eurozone crisis is increasingly edging towards an ECB bail-out though under a joint banner of (tax-payer) supported IMF help, to make it more palatable. (Whatever happened to the EFSF Big Bazooka?)

Meanwhile French President Nicolas Sarkozy, is likely to announce proposals on EU Treaty changes on fiscal responsibility, and Spain has just managed to get €3.75bn of debt away.

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