Governments ramped up efforts to beat the economic crisis and reject protectionism on Tuesday as Swiss banking giant UBS revealed record losses and German industry reported a massive setback. EU finance ministers met in Brussels on rescuing European banks from so-called "toxic waste" and the European Union announced it would hold a special summit this month on action to turn back recession.
"The biggest risk at the moment is the risk of protectionism," Czech Finance Minister Miroslav Kalousek said on arrival here to chair the finance ministers' meeting which was expected to focus also on relieving banks of crippling toxic assets. And ahead of a G7 meeting of finance ministers from seven leading nations on Friday, minister Shoichi Nakagawa of Japan warned that rising trade protectionism "would lead to disaster."
Economists warn that national efforts to boost domestic industry and financial services could backfire on other economies, repeating protectionism now recognised to have been a cause of the Great Depression. The European Union's top competition regulator said on Tuesday that it had "certain concerns" about whether a French loan to bolster the auto industry respected EU laws.
On Monday, President Nicolas Sarkozy announced state loans equivalent to about 10.4 billion dollars for French carmakers, in exchange for pledges to keep jobs and assembly lines in France. Investors meanwhile waited nervously for progress on a contentious spending plan in the United States intended to get the world's biggest economy back on track with a mixture of massive infrastructure projects and tax cuts.
President Barack Obama warned of "catastrophe" if Congress did not pass the package, which totals more than 800 billion dollars (618 billion euros). European stock markets slid as the US plan remained in limbo, with London's FTSE 100 index of leading shares falling 1.16 percent, the Frankfurt Dax down 1.56 percent and the Paris CAC 40 slipping 1.35 percent by the early afternoon.
Japan's stock market closed down 0.29 percent earlier on Tuesday. The dollar traded mixed against rival currencies in European deals ahead of an expected US Senate vote on the stimulus plan. In late morning trading in London, the euro fell against the dollar but the dollar fell against the yen.
Meanwhile US Treasury Secretary Timothy Geithner was due to announce how the administration intends to spend the remaining 350 billion dollars of a highly controversial rescue programme for the banking industry. "All eyes are on Washington, as today is G-day - Geithner Day - and the weight of expectations on the financial rescue plan is immense," said Martin Slaney, head of derivatives at GFT.
"Whilst this has provided hope-based support to stocks in recent days, in the hours ahead of the announcements from not only Geithner but also Obama and (Federal Reserve Chairman Ben) Bernanke, sentiment is turning jumpy." Markets were also depressed by the latest string of grim corporate results as Swiss banking giant UBS posted an annual loss of 17 billion dollars, the largest in Swiss corporate history, and announced 2,000 new job cuts.
An industry body in Germany meanwhile reported orders for machine-tools, a vital component of Europe's biggest economy, plunged by 40 percent in December and warned that 25,000 workers in the sector faced losing their jobs. "The fourth quarter was the worst quarter since 1958," Manfred Wittenstein, president of the German Engineering Federation, or VDMA, said in a statement. Orders for machine-tools fell by 29 percent in the last quarter of 2008 compared with the same period a year earlier, VDMA said.
The chief economist at the World Bank, Justin Yifu, called for a new Marshall Plan by wealthy nations to help poorer crisis-hit countries along the lines of US aid measures to shore up European economies after World War II. "Considering the global crisis we are in now, I think we should be more aggressive," Yifu Lin told a Washington conference. "We need to be more imaginative. And I'd like to propose a global recovery fund in the spirit of Marshall Plan."