SHAFAQNA (Shia International News Association) — Central banks in the euro zone are ready to step in to address any financial market turmoil that might result from elections in Greece this weekend, the president of the European Central Bank said Friday.
“The Eurosystem will continue to supply liquidity to solvent banks where needed,” Mario Draghi, the E.C.B. chief, told a group of economists in Frankfurt. The Eurosystem consists of the E.C.B. and the national central banks of the euro zone’s members.
His remarks were an example of how European officials are trying to deal with the short-term symptoms of the crisis to buy time for putting in place long-term structures that would make emergencies like Greece and Spain less likely to occur in the future.
Central banks in non-euro countries are also making contingency plans and reinforcing their defenses against spillover from the crisis in currency zone.
The Bank of Japan governor, Masaaki Shirakawa, said the central bank was “prepared to take all possible measures to ensure the financial system does not come under threat,” calling the European debt crisis “the biggest risk factor we are paying attention to.”
“Whether or not we can maintain the stability of financial markets is critical,” Mr. Shirakawa said in Tokyo. “There is no silver bullet, but if concerns arise about liquidity, we are prepared to inject that liquidity.”
The British government and central bank announced plans Thursday for emergency measures to help increase lending to businesses hurt by the contraction of the credit market. George Osborne, the chancellor of the Exchequer, said, “We are not powerless in the face of the euro zone debt storm.”
In Bern, the Swiss central bank said it was prepared to spend unlimited amounts of money to hold down the value of the Swiss franc if the euro came under further pressure.
Mr. Draghi also said Friday that a plan to remake the euro zone, which he is drawing up with Herman Van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission, would be made public “in a matter of days” so that it can be considered by European leaders at a summit meeting at the end of the month.
Mr. Draghi did not provide details. But based on public statements he and Mr. Barroso have made, it is likely that a central feature of the plan will be a so-called banking union in which euro zone countries would form a common insurance fund for bank deposits, to prevent bank runs. That would not be a quick fix because of the legal difficulties raised by anything that smacks of joint liability, not least in Germany.
The plan would also propose establishing a more powerful common regulator for the biggest banks, which are currently supervised primarily at the national level. It is possible that the E.C.B. would serve as that supervisor. Euro zone members would also establish a fund to close down terminally ill banks, to minimize the cost to taxpayers.
More immediate could be a move toward tougher European supervision of banks, led by the E.C.B., and a closer alignment of the separate national bank resolution funds. They would not draw on each other in times of stress but could turn to the European Stability Mechanism, the bloc’s bailout fund that is supposed to come online next month, were funding to prove insufficient.
At the same time, steps could be taken to introduce a banking levy that would feed into a common fund to protect all the “systemically relevant” banks in Europe.
A person with direct knowledge of the discussions among policy makers, but not authorized to speak publicly, said some of the measures could be adopted at a European Union summit meeting at the end of the month, while leaders would agree on a timetable to implement the rest.
Chancellor Angela Merkel of Germany has also called for similar steps, telling a gathering of family-owned business leaders that only by further integrating the European domestic market can the Continent remain competitive in the global economy. She also signaled that German acceptance for the E.C.B. to take on a greater oversight role.
Although it would take some time to implement such a plan, Mr. Draghi said the existence of a credible road map would reassure investors and European citizens. “Markets and people need to be reassured we are still traveling together,” he said.
The euro crisis headlines have been dominated this week by the market’s apparent rejection of Spain’s €100 billion, or $126 billion, banking sector bailout, but Greece’s moment of truth has been looming.
Greeks return to the polls on Sunday after an election in May failed to produce a workable coalition government. The country’s fractured political map could again produce a struggle among parties led by the conservative New Democracy, the anti-bailout Syriza and Socialist Pasok to muster sufficient allies to form a majority in Parliament.
Regardless of who wins, Greeks want overwhelmingly to remain in the euro, even as many reject the conditions Europe has imposed for receiving the bailouts that allow the flailing state to continue paying its bills. But some officials fear that an outright victory by anti-bailout parties could bring a destabilizing showdown with international lenders.
Markets were largely shrugging off the worst-case outlook on Friday, with European indexes rising broadly. The Euro Stoxx 50 index, a barometer of euro zone blue chips, climbed 1.5 percent, while the benchmark index in Madrid rose 0.3 percent.
The Standard & Poor’s 500-stock index had increased 0.5 percent by Friday afternoon in New York. Asian shares finished the day mostly higher. The Tokyo benchmark Nikkei 225 stock average closed marginally higher, while the Hang Seng index rose 2.3 percent. — www.shafaqna.com