Web posted at: 1/20/2009
Source ::: AFP
The Peninsula
LONDON: Prime Minister Gordon Brown warned yesterday of a "damaging spiral" of de-globalisation as he launched a new multi-billion dollar bank rescue and governments around the world prepared costly new measures.
The European Commission predicted that the EU economy will shrink 1.8 percent this year with surging unemployment and government deficits.
In a new sign of the recession taking a grip, Japan's industrial output plunged a record 8.5 percent in November and a regional bank said it was considering asking for public funds.
The prime minister, widely praised for his efforts to pull banks out of crisis last year, said that no country can counter the economic crisis on its own.
"Unless we come together to address these problems in a coordinated way, the world is at risk of a damaging spiral of de-globalising. It is fuelled by a combination of deleveraging and national-only policy solutions."
Brown called for the "widest possible international agreement" and warned against protectionism which he said "could be every bit as damaging to jobs and businesses in every part of the world, as the protectionism in trade has been in the past." Brown has taken a leading role in the international debate on battling the financial crisis and will host a recession-busting summit of the Group of 20 advanced and developing nations in London in April.
He has been forced by mounting bad debts to offer new protection to British banks and the government said it would coordinate its new insurance scheme to protect banks from toxic assets with other countries. British media said the new cash injection into banks could cost £200bn ($295bn). The government said was to help "otherwise creditworthy businesses, homeowners and consumers" find ways to lend money and keep the economy moving. Banks would pay to have bad loans underwritten by the government, leaving them with more freedom to increase lending to cash-starved businesses and individuals. As part of the plans, the Bank of England will use Treasury bills to purchase bank-owned assets worth up to £50bn.
The measures follow October's £37bn recapitalisation scheme, which failed to increase lending by banks suffering from the global credit crunch.
The announcement came as Royal Bank of Scotland, now majority-owned by the taxpayer, said it estimated an underlying annual loss of up to £8.0bn.
With the European Commission putting out a drastically more pessimistic forecast of prospects for Europe, other countries are already planning new measures.
It said the 27-nation EU economy would contracting by 1.8 percent this year before achieving growth next year of 0.5 percent. The eurozone economy would shrink 1.9 percent this year.
It predicted unemployment will climb to levels not seen in Europe for over decade.
Standard and Poor's rating service lowered its assessment of Spain's long-term sovereign debt by one notch to AA-plus from AAA. The downgrade, which came after similar action against Greece last week, followed mounting warnings about Spain's rapidly slowing econony.
Germany's Chancellor Angela Merkel — who has ordered an ¤80bn economic stimulus — warned against the danger of mounting debt in the "period of deep global degradation."
"In order to meet its national responsibility, the federal government has decided, in addition to having a plan to repay its debts, to lock long-term debt reduction into the German constitution," she said. The auto sector has been badly battered and France could take stakes in struggling car makers, Peugeot-Citroen and Renault, Industry Minister Luc Chatel said in an newspaper interview published yesterday, one day before the government announces its measures. Japan's Mazda Motor said it would cut its managers' salaries by up to 10 percent and cut production at domestic plants. Japanese industrial output plunged a record 8.5 percent in November — the biggest fall since records began in 1953 — as companies slashed production, official figures showed.
There were also fresh signs of trouble in Japan's financial sector as a regional bank, Sapporo Hokuyo Holdings, said it was considering applying for an injection of public funds to help it weather the financial crisis.
It would be the first Japanese bank to do so since parliament approved a new law last month allowing the government to pump public funds into banks.
- Inigo Montoya
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