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Jun 17, 2012 - 2:18AM

Debt crisis: Banks prepare for worldwide chaos after weekend Greek election

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Debt crisis: Banks prepare for worldwide chaos after weekend Greek election
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Central bankers are preparing radical action to stem the turmoil if
Sunday's Greek elections wreak havoc in the markets.

By Emma Rowley
7:34PM BST 15 Jun 2012
The Telegraph UK

Speculation is mounting that central banks including the Bank of
England, Bank of Japan and US Federal Reserve are readying emergency
support measures to fight the market fall-out which the result of the
polls could unleash.

G20 officials said central banks were ready to step in if needed to
stabilise financial markets after the vote. Canada is "ready to act" if
the situation takes a serious turn for the worse or there is "an
external shock", a spokesman for its prime minister said.

The head of the European Central Bank, Mario Draghi, also fuelled
speculation of looming action, as he indicated inflation was not a
threat which would prevent a move.

"There are serious downside risks here," he said. "This risk has to do
mostly with the heightened uncertainty."

In the UK, the Chancellor has announced ï¿½140bn emergency funds will be
funnelled to banks via the Bank of England to avoid another credit
crunch against the backdrop of the eurozone crisis. The prospect of more
action boosted the UK's benchmark FTSE 100 index on Friday, which closed
up 0.22pc at 5,478.81 points.

"The potential for further quantitative easing was always going to give
stocks a bit of a lift but people are still naturally cautious," said
Oliver Stansfield, director of equity sales at Fox-Davies Capital.

The fear around the elections is that if anti-austerity parties take
control it will signal the imminent exit of Greece from the euro as
bail-out agreements are torn up.

If politicians cannot form a government, the continued uncertainty also
threatens to rock markets.

In Japan, financial diplomat Takehiko Nakao warned that authorities
would respond to unwelcome currency moves as appropriate, a warning that
they will act if investors looking for a "safe haven" threaten to drive
up the Japanese yen.

In a similar move, Switzerland this week warned that it would move to
protect its own currency from appreciating further as money flees the
eurozone. A strong currency can hammer exporters and domestic tourism
industries.

David Cameron on Friday held a "coordination meeting" with EU leaders
via video conference to discuss issues including the eurozone before the
G20 summit in Mexico.

Also taking part were German chancellor Angela Merkel, her French,
Italian and Spanish counterparts, European Commission president Josï¿½
Manuel Barroso and European Council president Herman van Rompuy.

The crisis is expected to dominate the summit. But despite recent
events, some question whether a grand solution is on the cards.

"Aside from confirmation of a substantial increase in resources for the
International Monetary Fund, which has already been agreed, we doubt the
meeting will achieve much," said analysts at Capital Economics.

"Germany will probably resist pressure to do more to solve the crisis,
while coordinated monetary stimulus also seems unlikely."

http://www.telegraph.co.uk/finance/financialcrisis/9335072/Debt-crisi...

Jun 17th, 2012 - 2:18 AM