Eurozone governments are facing disappointment for their hopes that banks in the region would use new longer-term finance offered by the European Central Bank to buy up beleaguered sovereign bonds.
Bankers say big European banks are unlikely to buy more government debt using the three-year loans on offer from the ECB for the first time next week.
How banks will use the new three-year loans, called longer-term refinancing operations or LTROs, has been a matter of much debate in markets. Some governments had hoped banks would use the cheap ECB money to purchase higher-yielding government bonds, earning a return and helping to prop up debt-ridden countries.
Nicholas Sarkozy, the French president, suggested last week that banks could use the ECB funding to backstop their governments.
Francesco Ghizzoni, UniCredit chief executive, said earlier this week that “it wouldn’t be logical” to use ECB funding to buy more government debt, and he would prefer lending to the real economy.
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