Our Changing Globe

Posts Tagged ‘Europe’

Finance officials from some of the world’s top economic powers, which included, the United States, Japan, Germany, France, Britain, Italy and Canada, have pledged to get their countries banks lending again, believing it to be the best way to end the world’s worst recession since the 1930s.

Treasury Secretary Timothy Geithner and his counterparts from the world’s top seven industrialized democracies, acknowledged on Friday April 25, in a joint statement that their economies will need to be jump started in order for the global economy to rebound.

A joint statement read, “We are committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again, and we will take whatever actions are necessary to bring that about. Recent data suggest that the pace of decline in our economies has slowed, and some signs of stabilization are emerging. Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist”.

A goal of raising $500 billion for an emergency lending facility was set by G-20 leaders at their London summit on April 2 and Obama has asked Congress to put up $100 billion, and Europe and Japan have pledged equivalent amounts.

Other major countries, which include China, Russia and Saudi Arabia, have not come yet honored their commitments however, because China and several other big developing countries like India want to link the support to having a bigger voice in the IMF which predicts that the global economy will shrink this year, something that’s never happened in the post World War II period.

Earlier this week the IMF called on world governments to boost stimulus spending, especially on infrastructure projects such as roads and bridges, in order to create jobs, but European nations are loathe to run up huge budget deficits and have so far resisted U.S. pleas to increase their spending.

France’s Lagarde noted, “We are in a bind, if you will. On the one hand we have to inject public money into the economy because we believe this is the strongest and best multiplier. At the same time, in the medium and long term, we need to restore the sustainability of public finance”.

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Just one day after his government collapsed because of a parliamentary vote of no-confidence, Czech Prime Minister Mirek Topolanek, told the European Parliament that President Barack Obama’s massive stimulus package and banking bailout “will undermine the stability of the global financial market”.

Topolanek whose country currently holds the EU presidency said, “the United States did not take the right path”, and he criticized America’s widening budget deficit and protectionist trade measures, saying, “all of these steps, these combinations and permanency is the way to hell. We need to read the history books and the lessons of history and the biggest success of the (EU) is the refusal to go this way. Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the stability of the global financial market”.

The Obama administration hopes to spend its way out of the present deepening recession by means of a $787 billion economic stimulus plan, of tax rebates, health and welfare benefits, along with energy and infrastructure spending.

In an attempt to get banks to lend again, the treasury will pump $1 trillion into the U.S. financial system and will buy up treasury bonds and mortgage securities in an effort to rid banks of the “toxic assets” (devalued and untradeable assets) that presently appear on their balance sheets.

Obama insisted on Tuesday, March 25th, that his massive budget proposal will move the nation down the right path and will get the ailing economy growing, “This budget is inseparable from this recovery, because it is what lays the foundation for a secure and lasting prosperity”.

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