The central banks of major economies stand ready to take steps, including coordinated action, to stabilize markets as they prepare for a possible financial storm or public panic after cliffhanger elections in Greece this weekend.
Britain announced it would flood its banking system with more than ￡100 billion (US$155.43 billion), seeking to pump credit through an economy struggling to escape recession under the “black cloud” of the eurozone crisis.
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 tomorrow’s election.
Canada is “ready to act” if the situation takes a serious turn for the worse or there is “an external shock,” Andrew MacDougall, a spokesman for Canadian Prime Minister Stephen Harper, said on Thursday.
The Bank of Japan left policy unchanged yesterday following a two-day meeting, keeping its financial firepower in reserve in case it is needed after the Greek election. China and India are both working on contingency plans, officials and sources said last week.
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 the IMF, score a decisive victory tomorrow.
SYRIZA leader Alexis Tsipras said the memorandum deal with Greece’s international lenders, which has helped push the economy into a depression, would not last beyond the weekend.
However, French President Francois Hollande warned Greek voters about seeking what Tsipras has promised— a future in the euro, while ditching the 130 billion euro (US$164.3 billion) bailout deal sealed earlier this year and its demands for punishing austerity policies.
Hollande said on Greek TV that he wanted Athens to stay in the euro, rather than reviving its drachma.
“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.
G20 officials said that 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.
“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 G7 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 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.