ECB Gives Sweden EUR3 Billion Loan

"The European Central Bank (ECB) stepped in yesterday to help avert a Baltic financial crisis by lending EUR3 billion to the central bank in Sweden, whose banks dominate the region's financial sector. The ECB move signaled the Frankfurt institution's willingness to shore up official European help for countries such as Latvia, which is fighting to avoid a potentially disastrous devaluation of its currency. The EUR3 billion the ECB is supplying to the Riksbank will be used to boost the Swedish central bank's foreign reserves - increasing its firepower to help Swedish private sector banks if necessary...." [Financial Times/Factiva]

AFP adds that "...the move came amid mounting speculation that the financial crisis could force Latvia to devalue its currency, the lat, which is pegged to the euro. This would cause heavy losses for Swedish banks there. The Riksbank had earlier asked to borrow EUR9.2 billion in foreign currency from the Swedish National Debt Office to restore its foreign currency reserve.... Sweden, an EU member, borrowed the money from the ECB even though it is not part of the eurozone...." [Agence France Presse/Factiva]

The WSJ reports that European Commissioner for Economic and Monetary Affairs Joaquin Almunia "...said Wednesday that the bloc wants to avoid a devaluation of the Latvian currency 'at any price,' while a Swedish regulator said that country's banks were strong enough to withstand a blowout in the Baltic region, where they are heavily exposed. The comments bolstered currencies across Eastern Europe, which had fallen after Latvia last week attempted a failed bond auction and its currency, the lat, came under attack...." [The Wall Street Journal/Factiva]