Countries
across world gird for Greece turmoil
The
threat of turmoil sweeping across global markets next week if
Greece's election prompts a panicky flight of money from the euro
zone has policymakers from Beijing to Zurich preparing to protect
their currencies and economies from an unwelcome influx.
14
June, 2012
Swiss
National Bank President Thomas Jordan is among the most vociferous,
dangling the threat on Thursday of imposing capital controls to stop
the Swiss franc from soaring as a result of investors seeking the
currency's relative safety.
"The
SNB will not tolerate this," he said bluntly.
Switzerland
is not alone. The Bank of Japan is prioritising market stability,
according to one source, with economists saying the bank's main
concern would be to stop the yen taking off.
Intervention
would be a likely response should the yen rise too high for the
authorities' taste. With G20 leaders meeting in Mexico next week
there is even speculation of a coordinated global response although
no evidence of that has emerged so far.
India
has a range of crisis management groups within the government set up
to deal with euro zone-triggered financial stress, according to
Kaushik Basu, the finance minister's chief economic adviser.
In
China, key agencies including the central bank, have been asked to
come up with similar plans, sources said last week. Measures may
include keeping the yuan steady and stepping up policies to stabilise
the economy, they said.
The
big concern for all these countries - and others across Europe and
the Americas - is that a victory on Sunday by parties in Greece
opposed to austerity attached to its second bailout will send the
euro zone further into crisis by pushing the country towards the
currency bloc's exit door.
There
are already signs of contagion. Spanish 10-year bond yields rose
above 7 percent for the first time in the euro era on Thursday,
hitting a level widely seen as being unsustainable.
It
has all triggered concerns about another global financial market
spasm similar to the one that followed the collapse of Lehman
Brothers in 2008.
"Europe's
debt problems are the biggest risk to the global and Japanese
economies," BOJ Governor Masaaki Shirakawa told parliament this
week. "A loss of market stability will lead to a severe economic
slump, as we experienced during the Lehman crisis.
Norway
could also suffer a hot money surge. It could cut interest rates in
extremis to curb its currency, and has a monetary policy meeting next
week, but with an already thriving economy it would risk overheating
.
Fellow
euro outsider Denmark is in a similar camp. Its central bank, and a
top Swiss central banker, said last month that they were looking at
the possibility of deploying negative interest rates.
DEFENDING
THE FORT
Switzerland
is already working to protect its economy from uncontrollable franc
strength, a condition that damages exports and raises the danger of
deflation.
It
imposed a cap of 1.20 francs to the euro last September and pledged
on Thursday to defend it.
"Even
at the current rate, the Swiss franc is still high. Another
appreciation would have a serious impact on both prices and the
economy in Switzerland," Jordan, the SNB chairman, said.
"If
necessary (the bank) stands ready to take further measures at any
time."
Jordan
did not say whether capital controls - stopping money from flowing in
and out - were under consideration, but he pointedly did not rule
them out, saying: "We are continuously looking at all possible
other measures."
Sources
in Tokyo said capital controls had been discounted in Japan because
of the size of the economy, the world's third largest.
But
with the shock of the 2008/2009 crisis still fresh, the country is
not taking any chances. Indeed, many of the policies adopted in
2008/2009 are still in place, such as near zero central bank interest
rates and easier collateral terms for short-term funding operations.
The
Bank of Japan still has a Lehman-legacy dollar-swap arrangement with
the U.S. Federal Reserve, as do others. The latest extension of the
deal, which allows the BOJ to tap unlimited amounts of dollars, runs
to February 2013.
The
most probable scenario Japanese policymakers are looking at is a
flood of money rushing into yen assets, according to several
interviews in the past week with central bank and government
officials who craft economic policy.
Money
has flowed into the yen fairly persistently since the euro area
crisis erupted in late 2009 and the currency hit a record high of
75.31 yen per dollar in October.
Further
upward pressure would spark fresh currency intervention by
authorities, especially after the IMF said this week such a measure
was an option to ease volatility. The BOJ could also ease policy by
increasing the spending limit on its main tool - a 40 trillion yen
asset buying fund.
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