World economies prepare for panic after Greek polls

(Photo: Reuters)

June 15, 2012, Friday/ 18:57:00

Authorities in the world’s major economies are preparing for a possible market storm or public panic after cliffhanger Greek elections this weekend, officials said on Thursday, should radical leftists win and cast doubt on the nation’s future in the eurozone.

Britain announced on Thursday it would flood its banking system with cash as the eurozone’s crisis casts a “black cloud” over the nation’s economy. Officials from the G20 nations, whose leaders are meeting in Mexico next week, said that central banks were ready to take steps to stabilize financial markets - if needed - by providing liquidity and prevent any credit squeeze after Sunday’s election.  Canada is “ready to act” if the situation takes a serious turn for the worse of there is “an external shock,” Andrew MacDougall, a spokesman for Prime Minister Stephen Harper, said on Thursday.

In Europe, authorities also laid plans for tackling turmoil such as if Greeks emptied their bank accounts should the SYRIZA party, which has promised to tear up the country’s bailout deal with the EU and IMF, score a decisive victory on Sunday. SYRIZA leader Alexis Tsipras said the memorandum deal with Greece’s international lenders, which has helped to push the economy into a depression, would not last beyond the weekend. “The memorandum of bankruptcy will belong to the past on Monday,” Tsipras, who has rapidly emerged from fringe politics to challenge th e mainstream fo r power, told his last campaign rally in Athens. However, French President Francois Hollande warned Greek voters about seeking what Tsipras has promised -- a future in the euro while ditching the 13 0-billion-euro ba ilout deal sealed earlier this year and its demands for pun ishing aus terity policies. Hollande said on Greek TV that he wanted the country to stay in the euro, rather than reviving its drachma currency. “But I have to warn them, because I am a friend of Greece, that if the impression is given that Greece wants to distance itself from its commitments and abandon all prospect of recovery, there will be countries in the eurozone which will prefer to finish with the presence of Greece in the eurozone,” he said.

SYRIZA is running neck-and-neck with the mainstream conservatives for Sunday’s parliamentary vote, a re-run of an election last month th at pr oduced a stalemate in which neither the pro- nor anti-bailout camps were able to form a coalition. Greek banking stocks soared more than 20 percent on Thursday amid market talk that secret opinion polls were showing that a government favorable to the international bailout agreement was likely to emerge after the June 17 election.

Ready for the cash flow

Central bankers are ready to ensure enough cash is flowing through the financial system if severe market strains emerge after the elections in Greece, which coincide with votes in  Egypt and France, G20 officials said. “The central banks are preparing for coordinated action to provide liquidity,” said a senior G20 aide familiar with discussions among international financial diplomats.

Depending on the depth of any turmoil, an emergency meeting of ministers from the Group of Seven developed nations could be held on Monday or Tuesday during the Mexican summit of leaders from the G20, which includes major emerging economies such as China. Britain did not wait for the elections to announce action. Bank of England Governor Mervyn King said the country would launch a scheme to provide cheap long-term funding to banks to encourage them to lend to businesses and consumers. The central bank would also activate an emergency liquidity tool, King said in his annual Mansion House policy speech to London financiers.  King said the eurozone’s problems were causing a crisis of confidence in Britain that was leading to a self-reinforcing weaker picture of growth. “The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms ahead,” he said.

Faced with Greek defiance, officials said the eurozone would not tear up the main targets of the bailout no matter who wins the elections, but it might consider giving a new government in Athens some leeway on how it reaches them. “The headline targets cannot be changed,” one senior EU official told Reuters. “There could be some tweaks to the path  to get there, but not the goals.” Eurozone finance ministers are scheduled to hold a teleconference on Sunday evening to discuss the poll outcome.

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