23/09 16h23
by Paul Handley – WASHINGTON (AFP)
Assurances by the world’s leading powers that they are moving to stabilize the global economy failed to convince Friday, as markets sank again in impatience for more convincing action.
A surprise late-night communique from Group of 20 finance ministers and central bankers Thursday recognized the sense of urgency, after a day of intense warnings from leaders around the world, including a number of the elite group’s own members.
But it failed to quell worries that the stumbling US economy and the European debt crisis would return the advanced economies to recession and drag down economic growth around the world.
After a deep global rout Thursday, markets in Asia sank again Friday, with Hong Kong’s market 1.4 percent.
By about 1600 GMT, the main European and US markets had moved into slightly positive territory after sharp opening losses, still wary of giving a vote of confidence to the ability of the leaders of the world’s most advanced economies to get ahold of their problems.
The G20 officials, in Washington for the World Bank and International Monetary Fund annual meetings, issued a surprise statement after their dinner late Thursday aimed at calming the sense of panic spreading through markets.
“We… are committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” they said.
“We are taking strong actions to maintain financial stability, restore confidence and support growth.”
Faced with doubts about the political commitment of leaders in the advanced economies to deal with their weaknesses, the G20 offered specific details about actions being taken: in Europe, how a widening and deepening of the emergency European Financial Stability Facility (EFSF) will take place soon; and in the United States and Japan, plans for deficit and debt reduction.
They also vowed “to take all necessary actions” to protect banking systems and financial markets, and that central banks will ensure liquidity when needed.
The statement underwhelmed analysts, who said it offered nothing new.
“None of the 20 brought to this meeting any new policy initiatives… To say this is a disappointment is an understatement,” said Carl Weinberg, chief economist at High Frequency Economics consultancy.
“Surely this is the time to talk about how the governments are going to ensure that banks are adequately capitalized if Greece and the other troubled Euroland borrowers default on their debt.”
More worrisome news continued to spill from the eurozone. Moody’s downgraded a clutch of Greek banks, while, in the face of mounting worries about banks’ region-wide over their exposure to debt from Greece, Portugal and the other weak eurozone economies, European Union authorities said they would wait until the EFSF plan is ratified over the next few weeks to recapitalize troubled banks.
Meanwhile France’s main markets regulator Jean-Pierre Jouyet told France Inter radio: “We are in a world state of crisis… We face a risk of systemic crisis.”
European leaders, meanwhile, fended off pressure from the United States, the World Bank and the IMF to not sacrifice economic growth completely for debt and deficit reduction measures.
IMF chief Christine Lagarde repeated the point in her address to the World Bank-IMF annual meetings in Washington Friday.
“Advanced economies need as a matter of priority to reduce their deficit,” she said.
“But if they push too hard… they run the risk of harming growth and jobs.”
But German Finance Minister Wolfgang Schaeuble insisted that the top priority for indebted countries was tackling high deficits.
“It’s more important to combat the real causes for the crisis… high deficits,” Schaeuble said at a news briefing in Washington.
“It’s very clear that you cannot combat the crisis by amplifying the causes,” he added.
