G-7 Ministers Meet To Plan Financial Recovery
MELISSA BLOCK, host:
In a statement on the economy at the White House this morning, President Bush again tried to calm concerns. The president listed the steps that have already been taken by the U.S. and other governments. Mr. Bush also said he would be meeting with the G-7 finance ministers and the leaders of the World Bank and IMF early tomorrow morning.
President GEORGE W. BUSH (United States): Through these efforts the world is sending an unmistakable signal. We're in this together, and we'll come through this together.
BLOCK: But together may be a relative term, as NPR's John Ydstie reports, G-7 finance ministers have already signaled that they're unlikely to formulate a common policy to shore up banks.
JOHN YDSTIE: The issue of the moment has been how governments will stabilize the banking system and thaw the credit freeze that's threatening to plunge to the global economy into a severe recession. The British government announced earlier this week a move that amounts to a partial nationalization of Britain's banks through injections of capital. The US government is also preparing to shore up some US banks by buying their stocks. But when asked this week if the G-7 would formulate a common policy to address the problem, Treasury Secretary Henry Paulson said no.
Mr. HENRY PAULSON (Treasury Secretary, United States of America): I think that when we look at the G-7 we have very different countries, economies of different sizes, financial systems with different needs, and so I think it would not make sense to have identical policies.
YDSTIE: But while there might not be identical policies, Paulson said communication and coordination were crucial to taming the current crisis. This morning, French finance minister, Christine Lagarde expressed the same sentiments in remarks at a Washington think tank.
Ms. CHRISTINE LAGARDE (Finance Minister, France): To achieve coordination and synchronization with the right timing will require a broad approach and one that is not driven by self-serving interests and by self-serving I mean, those interests that you see in your immediate jurisdictions that have to do with your constituency essentially.
YDSTIE: Brendan Brown, director and chief economist at Mitsubishi UFJ Securities in London, thinks there's really not a lot more policy action necessary, especially in the United States where there's already a lot on the table. But he says, this weekend's meetings of finance officials could be useful if the U.S. and the rest of the world can convince Europe to reduce interest rates.
Mr. BRENDAN BROWN (Director, Chief Economist, Mitsubishi UFJ Securities): Basically, it's only the Europeans who can cut interest rates now. In the US rates are already at rock bottom with three month Treasury bill rates virtually at zero. So it's only in Europe that there is the scope to cut interest rates in any big way.
YDSTIE: The Germans have been reluctant to do that because of inflation fears, but if a European interest cut were to emerge from these meetings, it could help stabilize the banking system and provides stimulus to the global economy. Beyond that, says Brown, there's not a lot of policy action that's required.
Mr. BROWN: My feeling is we get to the end of this week, is that there is an extent now of irrational - just like we have irrational exuberance that Greenspan popularized a few years ago, I think we are at the end of this week, in a state of maybe some irrational depression as regards to the stability of that financial system, and probably that's going to dissipate sooner or even later. It doesn't need a lot more action or action plans compared to what is already out there.
YDSTIE: There's even been the suggestion by a number of analysts that the continuous proliferation of action plans is preventing investors from putting their money back into the markets, for fear the next new policy will cost them even more. John Ydstie, NPR News Washington.