Recession warning as euro lending dries up

After already shrinking by 0.6 per cent in August, eurozone bank loans to the private sector declined again by 0.8 per cent in September compared with the same period last year, the European Central Bank calculated in regular monthly data.

President Mario Draghi has long argued that the low level of lending activity is not due to tighter lending conditions on the part of banks but more a reflection of weak demand for loans as households and companies are reluctant to take on debt in the current crisis.

That is why the ECB’s decision to pump more than €1 trillion ($1.3 trillion) in ultra-cheap long-term loans into the banking system at the beginning of the year has not been as effective as Draghi had hoped.