GUY RAZ, HOST:
Now, if you've been following events in the eurozone over the past few months with equal parts anxiety and confusion, you're not alone. To help put today's news into a broader debt crisis context, we're joined by Felix Salmon. He blogs about finance for Reuters.com. Felix, welcome.
FELIX SALMON: Thanks, Guy.
RAZ: In your blog today, you call this coordinated action by the central banks, and I'm quoting you, "a holiday greeting card to the financial markets." Why?
SALMON: Because the banks in Europe weren't lending to each other, we had what was known as a European liquidity crisis. And if you know much about crises, liquidity crises are the worst crises you can possibly have. And so now, the ECB, which people were worried wasn't going to be lending into this liquidity crisis and wasn't trying to do anything about it, looks like it's woken up and is doing something about it. And plan, as they always say, beats no plan.
So we have a plan. We have - we hope it's going to work and it's certainly better than nothing.
RAZ: Okay. But as we just heard from Jim Zarroli, today's move has very little bearing on the enormous debt burdens in Greece, Italy and across the eurozone. Is this like trying to hold your car together with Scotch tape?
SALMON: Not really, no. There are two different issues is the problem. I mean, they're related, but they're definitely separate. This is a bit like putting gas in your gas tank while your car is falling apart. Your car is still falling apart, but at least it can keep on going for the time being.
RAZ: So what does it actually mean for the eurozone?
SALMON: Well, it means that we won't have failing banks. It means the banks will be able to borrow money when they need to and roll over their debts and save from seizing up and going bust and bringing the entire global economy to its knees. So that's an advantage. Obviously, it doesn't decrease the amount of debt that Italy has or Greece has or - it doesn't deleverage anyone, so it's not helping on the solvency front, but it's not meant to. It's just a liquidity facility. It's meant to pump money into the eurozone, which is short of cash right now.
RAZ: Why now? What is it about now that is crucial?
SALMON: Why now? Because the bloodstream of Europe, the money which was flowing around from bank to bank to bank had more or less seized up. Banks in Europe were not lending to each other. And if banks can't roll over their debts, then there's no financial system anymore and we have a major global crisis, which makes the first one look like nothing. So, as I say, liquidity crises are very, very devastating when they happen. They can happen very quickly. And they're relatively easy to head off.
All you need to do is basically what the central banks did today and you can push them off indefinitely, pretty much. So they're easy to treat, but if left untreated, they can be fatal in no time.
RAZ: So what can we expect these central banks to do a month from now, six months from now or a year from now?
SALMON: So the idea is that now that the central banks are lending freely, the individual commercial banks will start lending to each other again. And, of course, once they start lending to each other, the central banks don't need to do this anymore and they can quietly step back and say, oh, well, we saved the day and now we can go back and not bother with this kind of thing anymore. But if the commercial banks don't start lending to each other again, then this kind of program is going to have to continue to exist more or less indefinitely.
RAZ: Indefinitely until the financial crisis is over?
SALMON: Exactly.
RAZ: Well, how will ordinary consumers feel the effects of this, Felix?
SALMON: They won't. Ideally, they won't feel anything at all because their bank used to borrow from a different bank and now it borrows from the central bank and there's no real difference to them. This is a very much a sort of international financial plumbing thing that's going on here. It's not something which affects you or me.
RAZ: So why does it have such a big impact on the markets?
SALMON: Because without international financial plumbing, there are no markets. Without banks being able to move money around, the whole concept of markets ceases to have a lot of meaning and everything just grinds to a chaotic and rather devastating halt.
RAZ: But at the end of the day, the European debt crisis is still there, it's still the debt crisis and Europe can still go off the rails.
SALMON: Absolutely. This is doing nothing to solve the debt crisis. This is not about the debt crisis. This is about the liquidity crisis, which is a different crisis. So we've managed to solve one crisis, but the other big crisis is still there.
RAZ: I guess we should stay tuned.
SALMON: There's more than one crisis out there right now.
RAZ: Felix, thank you so much.
SALMON: Thank you.
RAZ: That's Felix Salmon, he blogs about finance for Reuters; explaining today's action by six central banks to improve access to U.S. dollars abroad. Transcript provided by NPR, Copyright NPR.