Recovery hopes boost eurozone money markets Eurozone money market activity recovered in the second quarter as confidence in the single currency union's economic recovery improved and fears of a euro break up receded. Following a steep contraction in same quarter a year ago, the amount of borrowing and lending in the region's money markets, which includes trading in derivatives, rose by 3 per cent to €75tn in the second quarter, according to a survey of 104 banks by the European Central Bank. Money markets, which provide ready sources of easy-to-access cash, are a crucial source of short-term financing for banks and companies and a key barometer of investor sentiment. The figures compare with a drop of nearly a fifth during the same period in 2012 as many money market funds withdrew from Europe amid fears of a eurozone break-up. The ECB data showed, however, that certain elements of market activity remained subdued in spite of the trading boost. Unsecured cash borrowing - that which is not backed by collateral - by banks decreased by 44 per cent to €1.75tn while their lending declined by 17 per cent to €1.46tn. "It's a cautious return [by money market funds]," said Roger Merritt, a managing director at Fitch. They haven't re-embraced European financial institutions to the same degree as before the eurozone crisis but there's also pressure on the banks side not to be too reliant on short term funding which can be volatile. Secured lending remained by far the largest proportion of money market trading, accounting for €30tn of overall activity, a rise of 17 per cent, driven by a 27 per cent increase in overnight lending deals. Durations were also short: less than one in ten secured trades constituted lending for longer than one week, highlighting persistent fears surrounding the continent's banking system among conservative money market investors. "It speaks of a lack of confidence" said Mr Merritt. Money market funds manage risk by shortening their maturity profile or shifting to secure lending so the fact there is a shift shows there is concern. Earlier this year European regulators proposed that money market funds should hold capital buffers against their investments - like banks - leading to an industry-wide backlash. Nevertheless the figures are likely to provide some comfort to European governments. It comes after figures from Moody's in September showed that overall allocations by US money market funds, which collectively manage almost $1.5tn in assets, to eurozone banks more than doubled over the past year to 15.8 per cent. French banks, which have been among the prime beneficiaries of this rise in allocation, accounted for 9 per cent. US money market funds have traditionally been an important source of short-term dollar funding for banks across Europe. In 2011, however, they were among the first big investors to withdraw money when fears about a eurozone break-up reached fever pitch and French banks were particularly badly hit. Since then eurozone banks have tried to reduce their money market trading overall. The bulk of US MMF exposure to the eurozone is mostly limited to a handful of big banks with those in the periphery largely ignored, according to analysts.