European Central Bank’s “open bar”

There was a fair amount of controversy here in Spain in the press about the European Central Banks “open bar” (barra libre as they called it here), where they passed out 490 billion in free drinks to the banks in Europe.

Many commentators (Toni Garrido being my favorite) wondered why the European Central Bank (which is theoretically owned by all Europeans) gives this money to the banks at 1% interest, which they can then buy government debt at 5% and pocket the difference?

Well, it turns out that this concern is actually moot, since the banks took the money from the ECB, and then deposited it all back at the ECB again for 0.25% interest.