REUTERS 3.3.09
EU can aid euro zone states..
By Marcin Grajewski and Brian Love
BRUSSELS/PARIS (Reuters) - The European Union pledged on Tuesday to
bail out any struggling euro zone members before they turn to the
International Monetary Fund (IMF) and said it was strong enough to
combat the global financial crisis.
The European Union has tried to overcome divisions in its response to
the crisis, vowing at a weekend summit to spur economic growth
without breaking single market rules.
But it has struggled to find a common response to the growing
economic problems in eastern and central Europe, where growth from
foreign investment has taken a sharp fall and threatens to worsen
precarious banks in western Europe.
"If crisis emerges in one euro zone country, there is a solution
before visiting the International Monetary Fund (IMF)," EU Monetary
Affairs Commissioner Joaquin Almunia told a seminar organised by the
European Policy Centre thinktank, adding that he would not discuss
the plan in public. [THAT doesn't inspire confidence! -cs]
"We are equipped politically and economically to face this crisis
scenario."
The global recession would be deeper than the IMF forecast a month
ago, the chief economist of the Organisation for Economic Cooperation
and Development (OECD) said on Tuesday.
"The recession will deepen ... there's no doubt," Klaus Schmidt-
Hebbel told Reuters in an interview in Paris. "I think this quarter
will be the worst quarter of all." [Oh! WHY? -cs]
On January 28, the IMF cut its forecast for global growth in 2009 to
0.5 percent from 2.2 percent. It forecast a 2.0 percent slide in
economic output from the world's most advanced economies.
European shares hit a lifetime low as banks reversed early gains,
with the pan-European FTSEurofirst 300 .FTEU3 index of top shares
down 1.3 percent at 673.41 as of 10:29 a.m.
QUANTITATIVE EASING
Governments and central banks have struggled to get funds flowing to
companies after banks, hurt by investments in debt linked to U.S.
subprime mortgages and rising bad debts, restricted lending to try to
conserve cash.
U.S. insurance giant AIG (AIG.N) secured on Monday a $30 billion (21
billion pounds) U.S. government lifeline.
Prime Minister Gordon Brown on a visit to Washington is expected to
press U.S. President Barack Obama for support for his plan to tighten
regulation and details on plans to fix the U.S. financial sector.
The Bank of England is expected to cut interest rates on Thursday and
Chancellor Alistair Darling has said the bank may decide to start
buying assets with newly created money to supply more funds to an
economy in its deepest slump since 1980.
Analysts expect the UK's central bank to halve its benchmark rate to
0.5 percent and then agree on a first instalment of quantitative
easing, a policy of pumping unlimited funds into the economy when
rates are already close to zero.
"We've given them the levers," Darling told the Daily Telegraph
newspaper. "They may decide this month that it's appropriate to do so."
The European Central Bank is also expected to shave half a point off
its benchmark to a record low of 1.5 percent on Thursday and is also
seen considering more unconventional ways of reviving lending.
--------------------------------
In Asia, Japan said it would lend $5 billion from its hefty foreign
reserves to a state-backed bank charged with funneling funds to
companies in trouble.
Toyota Motor said a financial services unit had applied for funds,
with state-run broadcaster NHK reporting the firm was seeking 200
billion yen ($2.1 billion).
--------------------------------------------------
Australia's central bank kept its interest rates steady on Tuesday,
encouraged by signs of the economy's resilience.
Its economy has yet to contract and the central bank still has room
for manoeuvre with its main cash rate at 3.25 percent, though markets
see a clear threat of recession and expect rates to fall further.
------------------------------------------
(Reporting by Reuters bureaus worldwide; Writing by Elizabeth Piper;
Editing by Jason Neely)
Tuesday, 3 March 2009
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