G-7 MEET SEEKS TO CALM GLOBAL MARKETS / EUROPE'S DEBT
CRISIS HEIGHTENS
IQALUIT, CANADA,
FEBRUARY 7, 2010
(STAR) (AP) – Top finance officials of the world's seven
major industrial countries pledged yesterday to work to calm global markets and
maintain government stimulus to sustain an economic rebound.
Speaking for the group, Canadian Finance Minister Jim Flaherty said leaders of the Group of Seven countries also discussed strategies they will use to withdraw stimulus once the recovery strengthens.
But Flaherty and other leaders did not indicate they were planning to propose any further stimulus beyond what they have already unveiled. They said they would push ahead with those efforts this year.
Flaherty spoke as the G-7 officials ended a two-day meeting in the Canadian Arctic. They met as financial markets were roiled this week over fears that a European debt crisis could derail the global recovery.
Flaherty said the leaders discussed the debt crisis in Greece. Treasury Secretary Timothy Geithner said European officials "gave us a very comprehensive review" of the situation there, which rattled markets this past week. "They made it clear to us that they will manage this with great care," Geithner told reporters.
Flaherty had chosen the remote town of Iqaluit, population 7,000, where temperatures can dip to 40 degrees below zero in February, to try to promote more informal discussions, which he dubbed fireside chats.
The United States was represented by Geithner and Federal Reserve Chairman Ben Bernanke. The G-7 consists of the United States, Japan, Germany, Britain, France, Italy and Canada.
The talks wrapped up on yesterday with discussions on the global economy, banking reform and Haiti, where the G-7 countries endorsed a US-backed effort to get the International Monetary Fund and other lending agencies to grant debt relief to Haiti as it struggles to recover from last month's devastating earthquake.
Developments in Europe in the past week provided a reminder that G-7 policymakers still face major hurdles in repairing a broken global economy.
The Portuguese parliament's defeat of a government austerity plan triggered renewed concerns that it and other countries such as Greece and Spain were having trouble tightening budget controls to manage their budget deficits. That could threaten the economic recovery in Europe.
Stocks fell in Asia and Europe, while the Dow Jones industrial average clawed back to a small gain Friday after suffering the largest single-day drop in seven months the previous day on worries about the global economy.
Heading into the meetings, some G-7 nations had expressed unhappiness about President Barack Obama's surprise announcement last month that the United States would seek tougher rules to prevent risky actions by big banks from toppling the entire financial system.
There was more consensus on the need to keep government spending going this year as a transition until consumers and businesses boost their own purchases.
Obama presented a budget plan this past week that would boost job-creation efforts and raise the US budget deficit to a record $1.56 trillion this year. British Prime Minister Gordon Brown is also stressing government stimulus. Critics point out that the country's budget deficit as a share of its gross domestic product could reach 12 percent this year.
In Japan, where the economy has struggled for two decades, the government unveiled more stimulus spending last week.
RELATED STORY:
Igloo collapses on Canada's finance minister
[PHOTO
AT LEFT - Canadian Finance Minister Jim Flaherty was felled on Saturday by a
block of snow as he toured an igloo on the sidelines of G7 talks in Canada's far
north. photo CANADA-ECONOMY-FINANCE-G7]
Flaherty was unscathed when the igloo archway slab got snagged on his parka hood and fell onto his back as he exited the demonstration snow house. The bricks made of packed snow can weigh up to 20 pounds (nine kilograms).
Its Inuit builders said not to worry, that they would quickly repair the damage to the igloo that had only been erected hours earlier. Flaherty, meanwhile, laughed off the incident.
Finance ministers and central bankers from the world's seven richest nations were gathered for two days in this town just 300 kilometers (185 miles) from the Arctic Circle to discuss keeping a tentative global economic recovery on course as fresh turmoil roiled financial markets.
EUROPE'S DEBT CRISIS HEIGHTENS
BRUSELLS, (STAR)
(AP) – Fears of another crisis spiral for the world economy deepened
Friday after the Portuguese parliament defeated a government austerity plan,
triggering renewed concern that the financial crisis in that country and in
Greece could spread through the eurozone and spill across its borders.
Spooked investors worldwide were fleeing risky assets like stocks. And from Shanghai to Sao Paolo, people were awakening to the reality that what is happening in these European minnow states has vast implications for the fate of the fragile global economic recovery.
Stocks fell in Asia and Europe as governments in Portugal and Greece pushed against fierce political resistance at home to cutbacks aimed at getting their deficits under control.
Markets fear Greece may default or require a costly bailout from already strapped European governments, and those concerns are spreading to other financially troubled governments such as Portugal and Spain.
Portugal’s position looked even weaker Friday after opposition parties defeated a government plan for austerity measures that the country needed to pass to soothe markets and reduce the soaring cost of insuring its debt, a measure of investor fear.
“Portugal is next in line with ... what is now a very timid attempt” to bring its deficit down, said Marco Annunziata, chief economist at UniCredit.
Top EU officials, the economy commissioner Joaqin Almunia and European Central Bank head Jean-Claude Trichet, tried Wednesday and Thursday to reassure markets of the strength of the eurozone and Greece’s determination to bring down spending. But markets haven’t listened.
The reason is a growing reassessment of government finances worldwide, and knowledge that a Greek default would tear new holes in banks’ already battered finances if they hold Greek bonds, most of which were sold to west European investors outside Greece.
The Athens government has outstanding securities of euro290 billion, more than twice those of the US investment bank Lehman Brothers, whose bankruptcy brought the world financial system to its knees.
Those fears have pounded stock markets in recent days, with German, French and British stocks closing down 1.8, 3.4, and 1.5 percent down Friday. What would have been a bounce on Wall Street from positive jobs figures remained flat.
On Friday, the Portuguese opposition passed their own bill, which the government says will punch a euro400 million ($550 million) hole in its budget over the next four years. The government says it is “irresponsible” and that it will try to annul it, risking new political friction.
“The risk of contagion now is very very serious. By the end of next week, if things haven’t calmed down or if they have actually intensified further, then it will be a matter of a short while before some steps are being taken,” Simon Tilford, chief economist at the Centre for European Reform, said.
European officials have said there is no need for a bailout for Greece and that it will be able to borrow the euro54 billion it needs to plug its budget gap this year.