Friday, June 15, 2012

Central Banks Stand at Ready to Fortify Euro

New York Times
June 15, 2012

With an election looming in Greece that could determine the future of the euro, central bankers overseas signaled Friday that they were prepared to take action to shore up nervous financial markets after Sunday’s vote.

The head of the European Central Bank, Mario Draghi, hinted that he would be ready to pump cash into banks there to head off turmoil. His counterpart in Tokyo, Masaaki Shirakawa, promised that the Bank of Japan was ready to “to take all possible measures to ensure the financial system does not come under threat.”

The statements underscored just how anxious policy makers are ahead of the vote, which they fear could result in a victory by left-wing parties that oppose the deep austerity Greece agreed to in exchange for financial help. If the anti-austerity Syriza party wins, it could eventually force an exit by Greece from the euro zone and feed fears of a broader financial crisis.

Authorities hope that a large infusion of cash into the financial system, if needed next week, could act as a financial firewall to help protect shakier banks in Southern Europe. Depositors have been fleeing not only Greek banks, but Spanish banks as well, raising concerns that these institutions could run short of the funds necessary to conduct normal business. As worries have spread, banks on the Continent have sharply curtailed short-term loans to each other out of concern that they may not be repaid if things start spinning out of control. That fear has further dried up the flow of money in many European economies.


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