Man, this is how the weaker EU countries got indebted to the ECB in the first place; cheap loans. Then bam, up went the interest rates. They’re falling for it again.
These loans are coming from ECB to euro banks, most of whom are insolvent and have increased capital reserve requirements. Capital markets are virtually closed to them (because they're broke).
What capital they do have is mostly sovereign (risky) bonds. The ECB is letting these banks use their sovereign bonds as collateral.
These banks went to ECB for loans, using the sovereign bonds as collateral, and are using that as capital reserves. They are not turning around and buying Greek, Spanish, Italian, etc. bonds for 5% - 7%.
So, ECB is providing the means for insolvent banks to recapitalize.
Now ECB is insolvent.
yitbos