Central banks, policy makers, and investors are preparing for the outcome of this weekend’s election in Greece. Today the Bank of England officially announced the launch of two new stimulus packages, prompting a rise in bank shares. Mario Draghi, president of the European Central Bank, has said that the ECB is ready to “act where needed”. Ben Bernanke has endorsed more activism by the Fed saying that, “The Federal Reserve remains prepared to take action as needed to protect the US economy in the event that financial stresses escalate,”
G20 leaders are meeting this coming Monday and Tuesday and Sunday’s Greek election will almost certainly dominate the discussions. If the Greeks are unable to form a workable coalition their membership of the eurozone will be put at risk, prompting a possible run on the banks similar to the withdraws earlier this week. A Greek exit from the eurozone would put added pressure on Italy and Spain where borrowing costs are at record highs, and would have a significant impact on the U.S. economy.
The eurozone crisis has prompted something of a rise in national defensiveness as Europeans look around for someone else to blame for their situation. Germany has been the target of unfair criticism, and the German government’s recent decision to block a plan that would pool European debt will almost certainly be criticized in the coming days and weeks.
The eurozone is economically diverse and European politicians have often (and sometimes not very subtly) made sure to emphasize that their countries are of greater significance or fiscal soundness than their neighbors. The following has been showing up in many people’s inboxes, and though hard to follow reflects the attitudes of many Europeans:
1. “Spain is not Greece.”
Elena Salgado, Spanish Finance minister, Feb. 2010
2. “Portugal is not Greece.”
The Economist, 22nd April 2010.
3. “Ireland is not in ‘Greek Territory.’”
Irish Finance Minister Brian Lenihan.
4. “Greece is not Ireland.”
George Papaconstantinou, Greek Finance minister, 8th November, 2010.
5. “Spain is neither Ireland nor Portugal.”
Elena Salgado, Spanish Finance minister, 16 November 2010.
6. “Neither Spain nor Portugal is Ireland.”
Angel Gurria, Secretary-general OECD, 18th November, 2010.
7. "Spain is not Uganda"
Rajoy to Guindos... Last weekend!
8. "Italy is not Spain"
Ed Parker, Fitch MD, 12 June 2012
Once the results of the Greek election are known, and the central banks and the politicians react, it will be interesting to see which of these statements (if any) turn out to be true. Whatever the outcome, the monetary actvism the central banks engage in will not be of much reassurance.