Finance ministers and central bankers issue hurried statement to halt market turmoil

Finance ministers and central bankers of the Group of 20 countries, which also includes Turkey, issue a hurried statement in an effort to halt market turmoil.

World stocks slumped on Thursday to their lowest level in 13 months upon the risk of a new recession.The world’s major economies on Thursday pledged to prevent Europe’s debt crisis from undermining banks and financial markets, and said the eurozone’s rescue fund could be bolstered.

Under pressure from investors to act, finance ministers and central bankers from the Group of 20 economies said they would take all steps needed to calm the global financial system.

“We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required,” the group said in a communique late Thursday.

World stocks slumped on Thursday to their lowest level in 13 months, hurt by the risk of a new U.S. recession and weaker economic data from China as well as Europe’s debt problems.

But the pledge of action from the G2O gave a lift to the euro in early trade on Friday, while softening stock losses in Asia. U.S. stock futures pointed to a higher open in New York.

In a sign the eurozone was working on adding to the potency of its 440 billion-euro financial rescue fund, the G20 statement said the bloc’s members would implement “actions to increase the flexibility of the EFSF and to maximize its impact” by the group’s next ministerial meeting in October.

No details were given of how the European Financial Stability Facility might be altered, although French Finance Minister Francois Baroin used the word “leverage” in comments to reporters.

The United States has previously proposed that Europe could leverage up the EFSF, giving it more clout to protect the eurozone and its banks.

A hurried communique

A U.S. official, speaking after the G20 meeting, said the group showed a heightened sense of urgency but did not discuss a specific mechanism to leverage or expand the bailout fund. Initially, officials had not planned to issue a statement, but came out with a hurried communique after Thursday’s big stock market sell-off.

A G20 source said the reference to the EFSF in the communique was left ambiguous to keep open the possibility of leveraging up the fund or using it to buy government debt on secondary markets.

European political leaders, especially in Germany, have opposed dedicating more money to offsetting what they see as the profligacy of highly indebted countries such as Greece, complicating discussions about fighting the financial crisis.

At the same time, tensions have flared within the European Central Bank, or ECB, over its role in buying debt of struggling eurozone countries. EU officials have said leveraging the EFSF could run into big legal problems.

However, Europe has come under heavy pressure from the United States and other countries to take bolder steps.

“We need to see concrete action involving coordinated monetary policy easing globally and a massive increase in the firing power of the EFSF or the ECB to buy bonds in indebted European countries,” said Shane Oliver, head of investment strategy at AMP Capital in Sydney. “Without any hard action, investors will quickly see through it and it won’t provide any help.”

September 23, 2011

SOURCE: TURKISH DAILY NEWS