The European Central Bank is backing away from any "big bazooka" style intervention to revive lending within the euro zone, delivering a blow to some market hopes of ambitious action.
Small and medium sized businesses that form the backbone of the Spanish and Italian economies have seen their borrowing costs rise to unaffordable levels during the crisis while interest rates charged to their German counterparts are near record lows, reflecting the ECB's rates.
This credit crunch, first revealed by the ECB's own data, has become one of the most visible examples of financial fragmentation dividing the 17-nation euro zone, prompting calls for action.
But the ECB's review of the problem suggests that the blockage in lending is the result of weakened bank balance sheets and would not warrant direct intervention in the SME borrowing process by the central bank.
The ECB has already announced that it is working with the European Investment Bank to devise ways of broadening the access to financing for SMEs by reviving a market for asset backed securities. Senior officials view the initiative as worthwhile but unlikely to be concluded soon or to have a big impact.
"This is not the new bazooka," one person familiar with the matter said. Another said expectations for the policy may have risen too high.
Senior officials regard as much more important the review of bank balance sheets that the ECB plans to oversee before taking over euro zone bank supervisory duties next year. Such an exercise could lead to a more thorough bank balance sheet clean-up, the absence of which may be the biggest obstacle to lending.