The European Central Bank today announced a substantial cash injection to support the potential crisis in lending across Europe, which could lead to a credit crunch and economic recession.

Banks across Europe have increased the cost of inter-bank borrowing, representing the increasing risk and lack of liquidity within the financial industry.

The aid package was announced today to the tune of 95 billion euros, in support of banks and mortgage lenders facing liquidity problems, and is designed to inject new life into Euro zone lending to prevent credit and liquidity issues over the coming weeks.

The European Central Bank will introduce the aid as a cash investment, making it the biggest intervention in financial markets by the central bank since after 9/11 six years ago.

With the threat of a worldwide credit crunch, business growth and expansion may be at risk without the finance to back it up, which could in turn stint economic growth and potentially lead to recession on a worldwide scale.

As a result, markets across Europe and the US closed significantly down over the course of today, with fears of a worsening global economic climate over the coming few weeks.

After a week of recovery in European shares, the news was taken as a serious indicator of things to come, and prompted a major sell-off throughout the second half of the day.

In the US, the Federal Reserve is also rumoured to be considering a similar aid package to help financial institutions hit by the US sub-prime lending scandal, in a bid to aid economic recovery in the region.

Despite the US intervention, thought to be in the region of $24 billion, President Bush has tried to alleviate market worries by anticipating a ’soft landing’ for markets across the globe.

Tags: ECB: European Central Bank News, European Economy News //