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 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 was issued late Thursday and pledged that the countries, which represent 85 percent of the global economy, would do what was necessary to restore financial stability and clam financial markets which had plunged on Thursday over renewed fears of a global downturn.
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 were seeking to demonstrate strong resolve in the hope that it will calm jitters that had sent financial markets down sharply. The United States was represented in the discussions 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 joint 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 working dinner but the turmoil on Thursday in global markets resulted in a change in plans. The group issued a one-page document that they hoped would demonstrate sufficient resolve.
The statement did little to reassure anxious investors. European markets fell sharply on Friday and Wall Street was set to open with further declines. In Asia, traders continued to dump stocks amid growing fears of a new global recession.
French Finance Minister Francoise Baroin told reporters the statement represented a "strong global" response to what he called a "very serious situation."
The statement was issued in advance of the start Friday of the annual meetings of the 187-nation International Monetary Fund and its sister lending organization, the World Bank. The discussions, which will wrap up on Saturday, have been 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 that all the G-20 countries felt there was a sense of urgency to take strong actions to deal with the financial market turmoil.
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 earlier in the year 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 $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 and the United States 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.
© Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.