ECB pledges action if Greece forced from euro zone
The European Central Bank on Friday joined the chorus of central banks promising to take action if financial market conditions significantly worsen after a critical vote in Greece this weekend that could determine the future of the country’s participation in the euro zone.
In Frankfurt on Friday, ECB President Mario Draghi reaffirmed that the bank stood ready to take more action to keep markets operating smoothly.
“The ECB has the crucial role of providing liquidity,” he said. “This is what we will continue to do.”
The ECB’s reassurance came after the Bank of England on Thursday announced new measures to keep the United Kingdom’s markets well-oiled and U.S. Federal Reserve Chairman Ben S. Bernanke last week pledged to intervene if market conditions worsen.
Many economists are worried that if Greek voters elect leaders who reject the continent’s financial stability plan, Greece will be forced from the euro zone.
That could cause a major financial crisis — and markets could start to react as soon as vote tallies come in Sunday in Greece.
While it has taken increasingly aggressive actions during the past two years, the ECB has been somewhat reluctant to take additional steps without clear signs from euro-zone countries that they are willing to take difficult steps to ease the crisis.
“We need strengthened foundations in the fields of financial, fiscal and structural policymaking,” Draghi said. “They should bring economic and monetary union closer to the hearts and minds of Europe’s citizens, whose ownership of our collective project of integration has been shaken by the crisis.”
Last week, the ECB left its central interest rate at 1 percent, disappointing investors who had hoped the central bank might take more steps. Unlike the Fed, the ECB has one overarching goal: keeping prices stable.
In addition to that objective, the Fed also seeks to maximize employment. The Fed will meet next week, and many economists expect the U.S. central bank to take at least modest steps to boost U.S. economic growth.
Bernanke also has pledged that the Fed would step in if financial market disruptions are too great. During the 2008 crisis, the Fed developed a number of tools to keep credit flowing in a crisis.
On Thursday, the Bank of England said it would activate a program of emergency loans to give British banks a cushion in case the European financial crisis spills across the borders of the euro zone.
Britain uses the pound, not the common currency.China’s central bank has held off launching a massive stimulus program but in early June reduced its benchmark interest rates for the first time since 2008 in an effort to invigorate China’s slowing economy.