Europe’s finance ministers Sunday told the U.S. and Japan they were prepared to use all available tools to prevent a metastasizing Greek crisis from roiling global markets, according to officials from the Group of Seven leading nations.
Top eurozone finance officials sought to reassure their G-7 counterparts, who are worried that Greece’s deteriorating financial crisis risks fomenting market turmoil and derailing a weak global recovery.
Markets across the globe showed investors are rattled by the breakdown in emergency financing talks over the weekend that will almost certainly mean Athens will default on a $1.7 billion payment due to the International Monetary Fund on Tuesday.
Japanese Finance Minister Taro Aso said the eurozone had promised to its G-7 partners that it would do whatever it takes to stabilize the financial markets.
A G-7 diplomat said on Monday the group welcomed “the decision taken by euro area ministers…to make full use of the instruments available to safeguard the stability and integrity of the eurozone.” Those efforts “will complement any actions the European Central Bank may take in full independence, in line with its mandate,” the official said.
U.S. Treasury Secretary Jacob Lew urged German, French and Greek authorities over the weekend to continue to seek a bailout deal, warning that the global economy was at risk from an escalation in the crisis.
Eurozone and IMF officials have said the currency union’s bailout funds, the European Central Bank’s monetary firepower and efforts to shore up the financial system ensure the region is much better prepared to weather a collapse of the Greek economy or an exit from the currency union.
“The euro area today is in a strong position to respond to developments in a timely and effective manner, as needed,” IMF Managing Director Christine Lagarde said Sunday.
Mr. Lew, however, has repeatedly cautioned against being overly sanguine about the potential fallout from the crisis worsening.
A European Union official said G-7 officials are staying in close contact, monitoring market developments and are prepared to issue an official joint statement to help calm investor fears if market turbulence escalates around the world.
“While the impact on markets is not good, it’s not as bad as one might have feared,” the E.U. official said. An official statement might foment anxiety at this point, he said.
Meanwhile, European officials are finalizing contingency plans for a potential Greek default or eurozone exit, the official said.
Greece’s government has scheduled a referendum for Sunday to determine whether there is political support for the tough economic overhauls and budget cuts the country’s creditors are requiring to release emergency bailout cash.
Although that forced Athens to institute capital controls to prevent a collapse of the country’s financial system, it also raises the risk that Greece could exit the eurozone.
Germany and other eurozone members have said they want to avoid such an event as it could fuel broader market and economic turmoil, as well as trigger more anti-E.U. political sentiment in the region. Athens hopes to win weaker bailout terms and stronger commitments for debt relief.
“A ‘yes’ vote would make it easier for a longer term agreement to be reached eventually while a ‘no’ vote would lead to a more dramatic escalation,” French bank Credit Agricole said in a client note on Monday.
Source: MarketWatch
