On both sides of the Pacific and the Atlantic and the entire region extending to the Gulf States, no country remained immune from the global stock market meltdown that began this Monday.The US 700 billion dollars bailout package failed to restore confidence and credibility in the global market and is being viewed as a drop in the ocean by several economic analysts.
The malaise has spread to markets in Russia, Brazil and even Indonesia, countries with little to do with sub-prime lending crisis, considered the trigger to the current global financial crisis, and it has led to a slowdown in the flow of money.
Thus the impact of the crisis is at a global level and fears of a global recession have gripped the world, with economic pundits claiming that recession has already hit the Japanese market and the US and Europe are not far behind. The responsibility for the stock market meltdown, this time around, is being laid at the doorstep of the Europeans who, it is alleged, have yet to come up with a comprehensively co-ordinated response to this crisis.
The Managing Director of International Monetary Fund (IMF), Dominique Strauss-Kahn, in acknowledgement of the inability of his institution to deal with crises in the developed world - not that the IMF had been able to deal with the 1979 Asian financial crises effectively - has not only requested that IMF be overhauled to overcome such crises in future but also urged Europe to come up with a collective response.
To date European efforts to deal with the crisis appear to be ad hoc, not concerted and focused on supporting individual banks from collapse, except for the interest rate cut that was announced last Wednesday. It is hoped that the meeting of G-7 countries would now result in bold plans for collective action.
The decision of the UK government to nationalise Northern Rock, whereby the state would protect the depositors, stemmed the tide of eroding depositor confidence.However, the Fortis experience reveals disunity among the Europeans.
The Fortis rescue was negotiated 10 days ago between the Benelux governments (Belgium and Holland) when the Dutch decided to take over all of Fortis' operations in the Netherlands.This forced Belgium to quickly find a solution for its stake and BNP Paribas agreed on Monday to take control of Fortis' operations in Belgium and Luxembourg in a 14.5 billion Euro cash-and-shares transaction.
Public intervention opened the door for private capital to follow - a desirable goal. Europe appeared then to be moving towards taking a concerted action as revealed by the French President Sarkozy on Monday, after there was an agreement between the 27 member European Union members to take the steps necessary to protect savings and maintain financial stability.
A number of European countries, spearheaded by Ireland and including France, moved to increase guarantees to bank savers in line with the action already taken by Germany. But their moves evidently did not calm investors in the short term, as stocks tumbled.
However, EU countries rejected a bailout package similar to that of the US and each country would take individual action to buttress the response to the global crisis, depending on its own nationals' preference or sentiment.
That the market's response has not been positive is fairly evident by now. The question on everyone's mind is, whether a concerted multilateral approach to deal with the crises as suggested by World Bank President Zoellick is possible.
There is little doubt that suggestion to use the US bail-out package for re-capitalisation of the troubled banks is unlikely to find favour as the US as a country is inherently opposed to nationalisation. In Europe, such rigidity is not an issue with the public, especially during a recession.Be that as it may, there is an urgent need to tackle the situation by ensuring that interbank lending commences again.
To be able to do this effectively, requires determining a rationale for toxic debt classification, a job that will be undertaken by a former Goldman Sachs executive, as announced by US Treasury Secretary Paulson. For the global market to rebound would require a sustained effort on the part of Western governments to follow the Fortis rationale: allow the public sector to intervene which may open the door for private capital to follow.