Market worries continue despite withdrawal of bank guarantees

Western civilisation owes a huge debt to ancient Greece.

But it’s the level of debt that modern Greece has chalked up,that is worrying financial markets at present.

Greece is finding it difficult to meet its obligations, in the wake of the global financial crisis.

And international markets are unlikely to stabilise, until that situation is addressed.

Sharp falls, on world stock markets last week showed that very clearly.

So a meeting to be held in Europe on Thursday, their time, will be watched very closely.

The main actors at it will be Jean-Claude Trichet, President of the European Central Bank and the finance ministers of the EU’s financially strongest nations, France and Germany.

The world is looking to France and Germany to rescue their Southern neighbour.

Allowing Greece to default on its debts is unthinkable.

Bank collapses are bad enough. Defaults on the sovereign debt of nations, are much worse.  They could send financial markets into outright panic.

That’s why it will not be allowed to happen.

There is no doubt, though, that the EU, itself, will be tested at that meeting.

The Federal Treasurer, Wayne Swan, carefully avoided direct mention of this danger at the weekend.

He merely warned Australians not to be complacent about economic recovery.

But he was confident enough to announce that the Federal government will withdrawing the bank and State funding guarantees that it put in place, after the global economic crisis struck.

Mr Swan also welcomed the stronger domestic growth forecasts that the Reserve Bank released on Friday.

He described the withdrawal of the guarantees as both “very significant” and “market sensitive.”

“I’m pleased to mark a very significant milestone in Australia’s recovery from the worst global recession in over 75 years,” the Treasurer said.

But he added a rider.

“I want to be very clear to all Australians that today’s announcement does not impact on the Financial Claims Scheme.

“This scheme will continue giving over 16 million Australians certainty over their deposits of up to $1 million, with that cap to be reviewed in October 2011.

“This deposit guarantee provides automatic free coverage for an estimated 99.5 per cent of all deposits.  It’s very important to distinguish that from the removal of the wholesale funding guarantee and the large deposit guarantee.

“Over the past 18 months, our financial system has proved itself one of the strongest in the world, thanks in large part to sound regulation and first-class supervision,” Mr Swan said.

“But we have been by no means immune from the effects of the global financial crisis,” he added.
More at www.treasurer.gov.au