Prior to their summer vacations, global policy officials have an extremely busy agenda as they attempt to stabilise Europe’s banking and sovereign debt crisis.
In Greece today, New Democracy Leader Samaras will continue negotiations with Pasok leader Venizelos to establish a new coalition government. Time is of the essence – Greece has been without a functioning government for more than two months and the troika will want to see that any new government is committed to the terms of the previous bailout before sending inspectors back to Athens. According a senior official in the Greek Finance Ministry, his country will run out of cash within four weeks unless the troika agree to release the next quarterly instalment of bailout money.
Over in Los Cabos, Mexico, G20 officials will also be focusing very closely on the deteriorating situation in Europe today and tomorrow. Work on a joint communiqué over the weekend was focussed on exactly how to convey a dual message of austerity and growth. This communiqué will be released tomorrow afternoon. A justifiable concern is that policy officials will fail to fashion a convincing response.
On Tuesday and Wednesday the FOMC meets to consider whether an additional round of quantitative easing is required. The pace of recovery in the US has moderated over the past couple of months, in part due to the worsening situation in both Europe and China. In addition, senior Fed officials are very concerned that the economy will be affected negatively by the strict regime of tax hikes and spending cuts to be introduced automatically at the end of this year. Fed policy-makers may opt to extend Operation Twist, a USD 400bn program under which the US central bank sells shorter-dated debt securities and purchases longer-dated ones.
Euro-area finance ministers meet on Thursday and Friday when proposals such as joint Eurobonds, a banking union and growth-focused policies will be put in front of Germany to consider once again. German Chancellor Merkel meets leaders from opposition parties on Thursday in an attempt to secure their support for the fiscal pact prior to a vote in the Bundestag on June 29th. On the same day, the Governing Council of the ECB meets; this is a ‘non-policy’ meeting, apparently, although it would be remarkable if there was not some informal discussion on the subject.
The latest EU Summit is due to be held on June 28th and 29th. A proposal for deeper euro-integration will be presented by ECB President Mario Draghi, EC President Barroso, EU President Van Rompuy and President of the Eurogroup, Juncker. No doubt Germany again will have reservations.