European leaders are girding their loins to limit any damage if the Greek vote leads to the country exiting the euro zone
AS EUROPEAN leaders braced themselves for tomorrow’s Greek election, the European Central Bank indicated it would provide “adequate liquidity” to the country’s banks as needed in coming days.
European leaders held a video conference yesterday evening to discuss how to react if voters back parties opposed to the country’s EU-International Monetary Fund rescue programme.
Chancellor Angela Merkel conceded that the euro zone crisis had set Europe a “historic test” but insisted the continent’s fate would not be decided this weekend. “The European issue will be decided in these months, this year,” she told German business leaders in Berlin.
“Will we take the right path and win back the trust of international investors? Without trust, we in Europe have no chance. The condition for trust is that we begin to stick to the thing we have promised ourselves. With that, a large part of our political union would be achieved.”
Dutch prime minister Mark Rutte added to the sense of drama, saying on television that “we must do everything possible to prevent the euro zone from falling apart”.
Without mentioning Greece by name, ECB head Mario Draghi promised to act against any refinancing shortfalls “which could lead to systemic consequences for the banking sector as a whole”.
“This is what we have done throughout the crisis . . . and this is what we will continue to do,” said Mr Draghi in Frankfurt.
“The Eurosystem will continue to supply liquidity to solvent banks where needed.”
Though Mr Draghi declined to go into details, ECB watchers suggested the bank could, if needed, agree an interest rate cut or a repeat of unlimited low-interest loans offered in December and February.
Mr Draghi’s ready-for-anything message was echoed by central bankers around the world, from Tokyo to London. Pre-empting tomorrow’s election result, the Bank of England announced £100 billion (€124 billion) worth of loans at just 0.75 per cent.
“Businesses and households are battening down the hatches to prepare for the storms ahead,” said governor Mervyn King.
The US government said “everyone is well-prepared, in the wake of the election in Greece, to work together” to support Greece and bolster confidence.
Swedish foreign minister Anders Borg was less optimistic saying that, at best, Europe faced an “extremely serious situation” in Greece – and a government that is going to find it hard to live up to agreements.
European leaders heading to the G7 meeting in Mexico are understood to have agreed to meet on the sidelines, if required, on Monday or Tuesday.
Meanwhile, it is increasingly likely that EU leaders meeting in Brussels at the end of June will consider giving the ECB a new bank regulatory competence.
Dr Merkel called yesterday for an “independent banking regulator that isn’t led by national interests” and said the ECB “might be the right home for it”.
The European Commission had called for the London-based European Banking Authority to be given additional powers beyond its current co-ordinating role. Leading the opposition to a pan-European ECB bank regulator yesterday was Bundesbank president Jens Weidmann.
“The ECB is already at the limits of its mandate,” said Mr Weidmann, a former economic adviser to Dr Merkel who also sits on the board of the ECB.
He agreed with his former boss, however, that Europe could “no longer put off a decision about where it wants to go”.
That call was taken up by the IMF, urging European leaders to move beyond emergency measures to a far-reaching permanent solution to the crisis.
“There is an immediate need at the euro-area level to ensure adequate bank funding and mitigate contagion,” said the IMF in a report yesterday. “But a last resolution to the euro-area crisis will require a convincing and concerted move toward a complete and robust economic and monetary union.”
Disagreement lingered yesterday among European leaders yesterday on what, if anything, they could offer the winner the election in Greece.
Germany’s opposition Social Democrats (SPD) suggested offering Greece’s next government more time to meet targets – but in an unchanged EU-IMF programme.
“We know that every medicine can be correct yet kill if too much is given,” said SPD leader Sigmar Gabriel. “The austerity dose Mrs Merkel has prescribed is an overdose and, if we don’t take care, a deadly dose.”
