As the markets prepare for the results of tomorrow’s Greek Elections, Central Banks around-the-World are ready to provide liquidity to the Banking System. In a recent Post, I noted how investors do not like Uncertainty. Similarly, they like to have the Confidence that their Government and Financial Ministers–for the US, that is the FED and the Treasury–are prepared to act.
At the beginning of the Great Recession (late 2007 to early 2009), the US Treasury created TARP to force additional capital on many banks and insurance companies, while the FED lowered interest rates to literally nothing and also created new monetary tools to enhance liquidity. But, the most pressing question now is what type of confidence can the Greek People have in their Government?
Right now, who knows what will happen in the Greek Election. Remember that only six weeks ago, the Election in Greece failed to form a Coalition Government. Will they actually be able to form a Government this time? If they do not form a Government, I wonder if that might be the worst thing that can happen. The Financial Markets can account for Bad News; but, they generally have trouble with On-Going Uncertainty. In Athens, there might not be an end in sight.
Meanwhile, Money is flowing out of Greece, along with all of the weaker economies in the EuroZone (the seventeen countries that share the common currency). If there is another Unsuccessful Election, that might accelerate negative consequences for other countries in The Zone, as well.
There are numerous stories in the various media about whether a coalition can be formed and what if Greece leaves the EuroZone. As usual, letting a problem fester only makes it worse and, in this case, might lead to further contagion.
The US Government and many others around the World appear prepared to act. The question is, will the ECB (European Central Bank), the Central Banks of the various European Nations and the IMF be ready to act–in a meaningful and tamely manner? Remember that The Zone now has five week link countries–and only twelve to do the bailing, and some of those are small. The Europeans truly must take the lead on this!
If you will be following the Greek Elections tomorrow night, remember that Athens is seven hours ahead of Eastern Daylight Saving Time.