For those worried that European and U.S. officials are asleep at the switch and are not doing enough to prevent markets from deteriorating further, this weekend’s commentary out of Jackson Hole would seem to suggest otherwise. In addition to Ben Bernanke’s decision to expand the September FOMC meeting from one day to two, there is word that the EU is working on a new plan of action and the IMF is sounding the alarm that the time to take action is now.
CNBC is reporting that according to the Sunday’s Times of London, the EU is said to be working on a "radical plan" to prevent Europe’s current debt mess from turning into a full-blown credit crunch such as was seen in 2008.
Although no sources were named, the Sunday Times said the ECB and European Commission are talking about backstopping the continent’s banks by providing guarantees to certain types of bank-issued debt.
The paper says this move is likely a response to reports that several European banks have been shut out of credit markets lately as more and more banks turn to the ECB for overnight funding.
Next up, although he has been criticized heavily of late for being unresponsive to the current crisis in Europe, ECB Chief Jean-Claude Trichet said Saturday in Jackson Hole that the ECB has options and will not be afraid to use them. In his speech, Trichet noted the ECB’s early actions in 2007 and reviewed the moves the central bank has taken in its efforts to thwart the growing risk of contagion.
Trichet then spoke of "non-standard monetary policy" and his willingness to use it if markets deteriorate. However, he softened this statement with a reminder that the ECB’s interest rate policy, does depend on a stable inflation outlook.
Also worthy of note over the weekend were the comments provided by IMF Chief Christine Lagarde, who said that European banks needed "urgent recapitalization."
Largarde added, "Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation.”
The new IMF Chief did not mince words as she added, "Developments this summer have indicated we are in a dangerous new phase."
Lagarde also made it clear that she is favors fiscal stimulus at this time. "The stakes are clear; we risk seeing the fragile recovery derailed. So we must act now," she said.
Thus, one could come away from Jackson Hole with the idea that the powers-that-be are about to get busy. But whether or not all the talk will be enough for the markets remains to be seen.
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