Talk but where’s the action from G-7?
Group pledges to take ‘all necessary steps’ to stop crisis, but pessimism continues
By Francis Chan
Analysts are bracing themselves for more nervousness when markets open tomorrow, after an important meeting of the world’s most powerful economies threw up tough words but no action plan on how to deal with the financial crisis.
After meeting for more than three hours on Friday, the Group of Seven (G-7) would say only that the crisis ‘calls for urgent and exceptional action’.
It pledged to prevent the failure of key banks and ‘take all necessary steps to unfreeze credit and money markets’, but did not specify how it intended to do this.
‘All of us recognise that this is a serious global crisis and therefore requires a serious global response,’ United States President George W. Bush said after the G-7 meeting.
With stocks crashing crazily last week and a global recession looking more likely by the day, investors had been hoping for more action and less talk from the grouping, which consists of the US, Britain, Japan, Germany, France, Canada and Italy.
In particular, many had wanted the G-7 to adopt a British plan to guarantee lending between banks that will solve a key problem that is fuelling the market panic today.
Britain’s rescue plan, launched last week, involves recapitalising its banks and guaranteeing interbank lending to bring interest rates down and get credit markets functioning again.
‘Markets wanted to get a game plan from the G-7 and they haven’t got that,’ said Ms Sophia Drossos, a New York-based currency strategist at Morgan Stanley, in a Bloomberg report. ‘There might be disappointment.’
G-7 leaders met again last night with their counterparts from the larger Group of 20, which includes Russia and China, and Eurozone leaders have scheduled a meeting today in Paris.
But market experts The Sunday Times spoke to remained highly pessimistic on whether governments could deliver.
‘It just underscores how difficult things are when you have a whole bunch of people who have to produce a new global rescue policy that involves their own country’s taxpayers’ money,’ said CIMB-GK economist Song Seng Wun.
‘They all have different agendas. We knew that it would be tough to come up with a new plan, but for them to actually admit it, is just bad.’
OCBC Bank economist Selena Ling said: ‘Come Monday, markets will still be very jittery and choppy.’
International Monetary Fund chief economist Olivier Blanchard thinks things will get worse before they get better.
‘In a worst-case scenario, governments will need a few more weeks to take the correct measures and the markets could fall another 20per cent. Then, we’ll turn around,’ he told Italian daily Corriere della Sera.
Still, French President Nicolas Sarkozy said yesterday that Europe would continue to push for a concrete solution. ‘There are two competing models. The American model, which no one wishes to draw inspiration from, and the British model. This is what everyone is talking about,’ a source close to the French presidency told Reuters.
Source : Straits Times - 13 Oct 2008
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