The Timing of Greece’s Bailout Extension

TND Guest Contributor: Paul-Martin Foss |

The proposed bailout extension for the Greek government would last until the end of June. The Federal Open Market Committee is meeting in mid-June, when many had been expecting the FOMC to raise interest rates. Bets as to whether the Fed might still increase interest rates in June?

While the situation in Europe doesn’t seem to be a pressing concern yet for the Fed, one hopes that it at least is something at the back of Janet Yellen’s mind. As the Fed continues to inch closer and closer to its “liftoff” date, it will have to consider the impact of its actions on Europe, and vice versa. Take a look at the Fed’s swap lines with the ECB. Total swap lines peaked in 2009 at nearly $600 billion, although those swap lines included arrangements with the Bank of England, Bank of Japan, and other major central banks. But the swap lines were brought back in late 2011 and early 2012 when the Greek crisis first reared its head, peaking at over $100 billion. While that may seem a drop in the bucket compared to a now-$4.5 billion balance sheet, it is not an inconsequential sum of money.

If the Fed isn’t thinking ahead and anticipating another flare-up in Europe in June, it might get caught unawares and find itself tightening via raising the federal funds rate and then having to loosen through the swap lines. Given how much Chairman Yellen likes to talk about the importance of transparency and forward guidance, what kind of message would that send to markets? At the very least it would be a highly confused message, which is why it’s far more likely that the Fed may only start raising rates in September, if at all.

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About  Paul-Martin Foss:

Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.

Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.

As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.

Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.

This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”