Exclusive: Central banks ready to combat Greek market storm

Thu Jun 14, 2012 4:27pm EDT
 
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By Stella Dawson and Lesley Wroughton

WASHINGTON (Reuters) - Central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the outcome of Greek elections on Sunday causes tumultuous trading, G20 officials told Reuters.

A senior U.S. official cautioned that the Greek election will not provide "the definitive signal on what happens next" in the euro zone debt crisis.

But if severe market strains emerge after an unusual confluence of three elections this weekend - there are important polls in Egypt and France as well - central bankers are on standby to ensure enough cash is flowing through the financial system.

"The central banks are preparing for coordinated action to provide liquidity," said a senior G20 aide familiar with discussions among international financial diplomats. His statement was confirmed by several other G20 officials.

Wall Street stocks jumped sharply on the news, with the S&P 500 and the Dow Industrials both up more than 1 percent. The euro added to gains and U.S. government debt prices fell, boosting yields.

Separately on Thursday, British finance minister George Osborne said the government and the Bank of England will act together with new monetary policy tools to tackle tightening credit and financial market conditions triggered by the euro zone crisis.

A move to boost liquidity by central banks could mark a dramatic backdrop to the G20 summit of world leaders, who will gather in Los Cabos, Mexico, on Monday and Tuesday, with Europe's escalating crisis topping the agenda.

Leaders will be accompanied by finance ministers playing an advisory role. The ministers, who usually keep a low profile at these summits, have scheduled a working dinner on Monday and lunch on Tuesday.   Continued...

 
A woman walks past a closed shop with election campaign posters of Democratic Left party and radical left SYRIZA party on it in central Athens June 14, 2012. REUTERS/John Kolesidis (GREECE)