Central banks on standby if Greek vote hits markets

City A.M. Reporter
CENTRAL banks have devised a plan to boost liquidity and prevent a credit crunch if Greeks fail to elect a pro-bailout government on Sunday.

A senior US official cautioned that the Greek election will not provide “the definitive signal on what happens next”, stating that 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,” a G20 aide told Reuters.

The news came after markets were propped up by rumours that Greeks are set to vote for a pro-bailout government – in which event no such liquidity move would be required.

Greek stocks shot up by over 10 per cent yesterday, followed a spike of around 20 per cent in Greek bank stocks, provoked by the rumoured poll data.

And markets throughout the world were also bolstered by the bullish news, which would boost the chance of Greece staying in the Eurozone.

“Greek stocks are in rally mode on hopes for a decisive victory for the conservative New Democracy party,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.

“We caught a glimpse of a headline earlier suggesting that 80 per cent of Greeks want to remain inside the euro area, which is what we have thought would remain an influential factor throughout the elections.”

Shares jumped in the US, the Dow Jones closing up 1.24 per cent, to 12,651.76, while the Standard & Poor’s 500 also gained more than one per cent. The Nasdaq rose by 0.63 per cent.

The MSCI world equity index, which measures share prices across the globe, added 0.2 per cent, while the euro gained ground against the dollar.

Yet many analysts see the gains as a short term blip, given the rising borrowing costs faced by the key Eurozone governments of Spain and Italy.

Uncertainty continues to rock the single currency area, despite yesterday’s hopes over the outcome of the Greek election.

Radical left part Syriza has been high in the polls, taking advantage of anger among voters at the conditions imposed on Greece in order for it to receive its latest tranche of aid from lender states.