Delray Beach, Florida

Despite massive monetary stimulus by the European Central Bank (ECB), credit growth across the 16-member Euro-zone remained weak through July.

According to the ECB, recent data showed tighter bank lending standards, household debt reduction and tepid corporate demand for borrowing; the widely watched broader monetary aggregate or M3 continued to slow through July to a record low expansion of just 3% for the year-over-year period.

In the United States, M2 (M3 is no longer shared with the public) has expanded by 8.4% over the last 12 months through July, down from more than 10% in January.

The ECB recently pumped over $500 billion dollars into Euro-zone money markets to boost lending and credit-flows. But the region, which continues to show signs of a manufacturing rebound – especially in Germany, is being accompanied by an absence of bank credit growth. This suggests any recovery will probably be short-lived, since weaker companies are struggling to raise financing while others go bust.

Many European banks still have bad loans tied to their books. Nowhere are economies in worse shape than in Central Europe; growth rates have crashed over the last 12 months in peripheral countries like Ukraine, Romania, Bulgaria and, especially, in the Baltic Republics.

Latvia, Estonia and Lithuania have seen their respective GDP rates plunge more than 20% in Q2 compared to 12 months earlier. Statistics like these are depression-era figures and clearly depict a total collapse of domestic consumption and bank credit.

Many banks in Western Europe are still exposed to this volatile region where non-performing loans will increase; the ongoing rally in capital markets is masking the deep trouble still plaguing this heavily leveraged region. Sweden, Austria, Italy and Germany remain highly exposed to loans made earlier in the decade.

Meanwhile, trends in Euro-zone bank lending are similar to the challenges affecting the United States. Both central banks have aggressively attacked domestic credit markets with massive injections of capital hoping to stimulate lending; but the takers are few as banks still prefer to hoard cash. The credit crisis is now in its 25th month.