Important banks must be protected from bankruptcy; finance ministers from the G7 group agreed on Friday. Uncertainty remains over how the pledge shall be carried out however.
The G7 countries were able to agree, late on Friday evening, to a five point plan of “decisive action” and continue to work to calm chaotic financial and credit markets.
Concrete measures were conspicuous in their absence following the Washington meeting of finance ministers of the G7 – which comprises the US, Japan, Britain, Germany, France, Italy and Canada.
Swift and decisive action was needed, the group suggested. What this means in practice is unclear and SEB economist Robert Bergqvist does not think the message being sent out from Washington is strong enough to calm troubled markets.
“It is a little thin. One had hoped for something more global and concrete. It is not enough just to promise to protect key banks. That much is clear. Some form of guarantee is required,” Robert Bergqvist said to news agency TT.
US Treasury Secretary Henry Paulson is set to follow Britain’s lead and put the finishing touches to a plan for the US government to buy stakes in financial institutions to calm panic-stricken markets. The plan, which will make use of powers ceded by congress when it approved a $700 billion rescue plan on October 3rd, is intended to stimulate the injection of private capital to supplement government funds.
It is however recognized to be difficult for the US government to put in force both collective and individual measures to stabilize markets and restore faith in the financial system.
“The US economy is faced with an extended period of insecurity and our financial markets are experiencing extraordinary challenges beyond comparison,” said Paulson after Friday’s G7 meeting.
Robert Bergqvist does not believe that we have heard the last from the world’s leading industrial countries. He forecasts that negotiations will continue over the weekend.
“I think that this is just the beginning of something because I feel that they understand that something more must be done. There are very large decisions to be made and it is very difficult to reach agreement. There are different characteristics to the problems in the various individual countries,” Bergqvist said.
In addition to the G7 meeting the International Monetary Fund (IMF) will also gather for talks in the US capital over the weekend.
Eurozone ministers are scheduled to meet in Paris on Sunday.