So good is the job Mario Draghi doing with the LTRO that there are reports that he is about to add another €1 trillion in February to the existing €500 billion in loans. The LTRO is being used effectively in buying up sovereign bonds and keeping things at bay.

Alberto Gallo from RBS said Draghi’s €489bn loans to banks at 1pc for three years (LTRO) is having all kinds of toxic side-effects, which is disturbing given that the Financial Times splashed today that the banks may draw down another €1 trillion at the second LTRO in late February

The banks are certainly stepping up purchases of Club Med and Irish sovereign bonds, the so-called Sarkozy “carry trade”. They also bought 62pc of the latest debt issue by the EFSF rescue fund in January, up from a quarter in the previous issue.

This might explain why it’s so hard to get credit in the economy. Like that’s going to help the recovery. 😉

While the banks are buying more sovereign debt, they are cutting credit to the rest of the economy, with falls of 2.4pc in Italy and Portugal in December, and 0.8pc for the eurozone as a whole.

Source: Ambrose Evan-Pritchard