The European Union can help any struggling eurozone member, it said on Tuesday, as British UK Prime Minister Gordon Brown took Europe's views on taming the financial crisis to President Barack Obama in Washington. The turmoil world leaders face is worse than thought just over a month ago, the OECD group of developed countries warned, chilling markets as European stocks fell to near 12-year lows.
But EU Monetary Affairs Commissioner Joaquin Almunia offered some solace, telling a seminar on Tuesday: "If crisis emerges in one euro zone country, there is a solution before visiting the International Monetary Fund (IMF)." "We are equipped politically and economically to face this crisis scenario," he said, but he declined to give details.
The European Union is working to overcome divisions in its response to the crisis, and vowed at a summit last weekend to spur economic growth without breaking single market rules.
OECD SEES DEEPER RECESSION: Klaus Schmidt-Hebbel, chief economist at the Organisation for Economic Co-operation and Development (OECD) which groups 30 developed nations, sees no immediate let up in the gloom. "The recession will deepen ... there's no doubt ...I think this quarter will be the worst quarter of all," he told Reuters in an interview:
He warned that the IMF's forecasts in January of 0.5 percent global growth in 2009 and a 2.0 percent slide in economic output from the world's most advanced economies were already obsolete. "The shape of it will be a significantly deeper recession than what was forecast by the IMF in January, at all levels," said Schmidt-Hebbel. "(It will be) significantly deeper and more protracted - meaning longer than what is embodied in the IMF forecasts." The latest chills hitting western Europe stem from its exposure to central and Eastern Europe, where its banks have lent an estimated $1.7 trillion.
Hoping to stem, the backlash from deepening trouble in central and Eastern Europe, a trio of development banks last week earmarked 24.5 billion euros to help banks and firms but jitters persist. Governments and central banks have struggled to get funds flowing to companies after banks, hurt by investments in debt linked to US subprime mortgages and rising bad debts, slashed lending to try to conserve cash.
US insurance giant AIG on Monday secured another $30 billion US government lifeline. Brown's visit to Obama is the first by a European head of state since the president took office on January 20 and is expected to focus on their response to the crisis.
Brown is preparing to host a summit of Group of 20 developed and emerging economies in London on April 2 and the British leader is expected to press Obama for support of his plan to tighten regulation as well as for details on Washington's plans for fixing the US financial sector.
Analysts expect both the UK central bank and the European Central Bank to cut interest rates to record lows at interest rate setting meetings on Thursday. Earlier on Tuesday the Australian bank held its rates steady at 3.25 percent, confounding expectations of a cut, saying stimulus already in the piple was helping the country avoid the depths of recession seen elsewhere. The Bank of England could this week start buying assets with newly created money to boost the money supply and the economy, British finance minister Alistair Darling said in a newspaper interview on Tuesday. "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 Obama administration is considering a plan to buy bad loans and other distressed assets by creating multiple investments funds, according to The Wall Street Journal, which quoted people familiar with the matter.
The funds would take distressed assets off banks' books and while no final decision has been made on the plan's structure, a set of separate funds run by private investment managers is one leading idea, the newspaper said. Japan also took aim at funds for companies on Tuesday, saying it would lend $5 billion from its hefty foreign reserves to a state-backed bank charged with funnelling funds to firms in trouble.
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