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Global leaders struggle to calm recession fears | ASHARQ AL-AWSAT English Archive 2005 -2017
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WASHINGTON (AP) — The world’s major economic powers are pledging to launch a bold effort to deal with a chronic slowdown in growth and a European debt crisis that are threatening to push the global economy into another recession.

But it was unclear whether their strong words would be backed up by equally strong actions.

The statement by the Group of 20 major economies late Thursday pledged that the countries, which represent 85 percent of the global economy, would do what was necessary to restore financial stability and calm financial markets. The markets had plunged on Thursday over renewed fears of a global downturn.

Those involved in the talks were the finance officials of traditional economic powers such as the United States, Japan and Germany and major emerging nations such as China, Brazil and India. The United States was represented by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.

“We are taking strong actions to maintain financial stability, restore confidence and support growth,” the G-20 statement said. “We commit to take all actions to preserve the stability of banking systems and financial markets as required.”

The G-20 group had not been scheduled to issue a statement after their dinner but the turmoil on Thursday in global markets resulted in a change in plans.

European markets rose tentatively in early trading Friday while U.S. stock futures were up. In Asia, traders continued to dump stocks.

French Finance Minister Francoise Baroin told reporters the statement represented a “strong global” response to what he called a “very serious situation.”

The annual meetings Friday and Saturday of the 187-nation International Monetary Fund and its sister lending organization, the World Bank will be dominated by the European debt crisis.

A senior U.S. Treasury official who briefed reporters on condition of anonymity to discuss the closed-door discussions said all the G-20 countries felt there was a sense of urgency to take strong actions.

Investors are worried that Europe’s debt crisis could destabilize the global economy at a time when growth has already slowed significantly due to a jump in oil prices and a pronounced slowdown in the United States, the world’s largest economy.

The Dow Jones industrial average sank 391 points on Thursday, marking the second-straight day of massive losses on Wall Street.

IMF Managing Director Christine Lagarde said the world was entering a “dangerous phase” and World Bank President Robert Zoellick said he still believed the globe could avoid a double-dip recession “but my confidence in that belief is being eroded daily.”

Greece could default on its debt next month unless it receives a euro8 billion ($10.9 billion) installment from a bailout fund managed by the European Central Bank, the European Commission and the IMF.

A default could destabilize other financially troubled European countries, such as Portugal, Ireland, Spain and Italy. It would also deal a blow to many European banks, which are large holders of Greek government bonds.

Major emerging economies including Brazil, India, China, Russia and South Africa said in a statement they would “consider, if necessary, providing support through the IMF or other international financial institutions” to address the European debt crisis. But the group played down suggestions that they would be willing to purchase government debt of troubled European countries.

Geithner said the United States has a huge stake in seeing Europe succeed and the G-20 group discussed proposals he has raised to expand the resources of the European bailout fund by using methods the United States employed during its own financial crisis in 2008-2009.

The G-20 communique spoke of trying to increase the flexibility of the rescue fund and maximize its resources but spelled out no specific ways to accomplish those goals.

The joint statement also said the G-20 nations planned to produce a “collective and bold action plan” to boost global growth and deal with high government debt to be unveiled in time for a summit of G-20 leaders, including President Barack Obama in Cannes, France, on Nov. 3-4. However, the communique gave no hint of what would be included in the new action plan.

Europe has struggled to convince financial markets that it has the will to prevent a catastrophic debt default by Greece that could cascade to other highly indebted European countries. The United States, meanwhile, has been unable to produce a long-term deficit reduction because of a deadlock between Democrats and Republicans about the role spending cuts and tax increases should play in the program.

Faced with the deadlock in Congress, the Federal Reserve on Wednesday said it will try to push long-term interest rates lower and make consumer and business loans cheaper by shifting $400 billion out of short-term Treasury securities and into longer-term bonds. Economists, however, doubt the plan will do much given that U.S. interest rates are already near record lows.