The Reserve Bank is putting a 60% chance on the eurozone 'muddling through' its debt crisis with no members leaving, a 30% chance of a Greek exit, and a 10% chance others will follow Greece, Governor Alan Bollard told Parliament's Finance and Expenditure select committee today.
A Greek exit could happen in a moderately tidy way, and not have too many implications, Bollard said. However there was a chance it led to wider contagion.
“The real concern, both in Europe and around the world, is, could a Greek exit spark off contagion through into other peripheral countries that are bigger and more important, and where there are liabilities that are held by German and French banks – and I’m talking about Spain and Italy," Bollard said.
“We think there’s a small chance of that, but it’s absolutely a real chance," he said.
“In a situation like that, we’d be looking very much at both the funding markets and the trading markets. Were we to see funding markets close up to the extent that it was causing any stress in the banking system, we would expect to be able to put in place some of the measures that we have already tried out during the global financial crisis.”
That included making liquidity facilities available to banks for receipt of appropriate securities and at a price.
The Official Cash Rate could also be cut from its record low 2.5%.
“We’re in a reasonably comfortable position in that we can do that. But, I should say that we’re not planning to do that at the minute. Certainly we’ll watch it as a contingency," Bollard said.
6 Comments
Mr Bollard opens the door to some sensibles solutions, unless I misunderstand what the following means: In the event of a significant crisis occurring in Europe causing contagion to large markets and resulting effects to us and all our trading partners (my summary of the criteria), he would countenance the following:
"That included making liquidity facilities available to banks for receipt of appropriate securities and at a price."
That sounds like money printing to me; and good on him for getting around to the idea. I personally would be embarking on a round of it quickly to help fix our own current account problems stemming from a too high exchange rate; and massive national debts and lack of ownership. Nevertheless its good that the idea is formally tabled. Otherwise we are greece who cannot print their own money; the absolute underlying reason why they are in such a mess; and why Spain, Italy and others will follow them out of the Euro, unless the Germans allow money printing and or European guarantees of the sovereign debts held by member countries.
We have warned of this pathway for 3 years and now we are on it...the piigs are beyond saving...the EU is defunct...the euro is toast....all EU sov bonds are now high risk if not junk, along with the US gov bonds.
The taxpayers across the EU are expected to cover the bank losses...the fatcat slobs running the banks are wallowing in bloated salaries and a river of bonus loot....they never lose.
The end result will be civil violence...it will be aimed at the pollies and bankers and players who have strived to navigate the EU into this effluent pit.
All other economies dependent on exports to the EU will cop a blow to their parasitic banking farce and their economies...they too will expect the public to bail out the fatcats.
That is what Bollard will do...he will bail out dead banks keeping fatcat bosses on bloated salaries and he will say it is for the good of the economy...if he has anything to say at all.
It's just Bolly fluff CJ....he's into jawboning again....they had a workshop at that American hole where all the reserve bank whatsits went to listen to god spout forth on why the FED will save the world....then it was off home to dish it out to the masses...."growth is just round the corner....believe me...everything will be hunky dory"
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