G7 promises "urgent, exceptional" action on financial crisis (Roundup)

By Chris Cermak Oct 10, 2008, 23:27 GMT

Washington - The world's seven leading economies agreed to do everything in their power to tackle a financial crisis that threatens to plunge the world into recession and promised to provide banks the money they need to stay afloat, according to a joint statement by the Group of Seven on Friday.

The G7 finance ministers and central bank heads said they would use 'all available tools' to stabilize the financial system and unblock credit markets that have come to a virtual halt in the United States and Europe.

'The G7 agrees today that the current situation calls for urgent and exceptional action,' read the statement. 'We commit to working together to stabilize financial markets and restore the flow of credit.'

The meeting in Washington came as stocks around the world plunged in record levels this week amid widespread fears of a global recession.

There were no specific joint moves announced, but the group did suggest all seven governments were ready to throw public funds into banks that are threatened with collapse for a lack of capital.

The seven countries promised to 'ensure that our banks ... can raise capital from public as well as private sources in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.'

A number of countries said they were planning to take equity stakes in their banks as part of a rescue plan and injection of capital.

Treasury Secretary Henry Paulson said the US would buy shares in financial institutions as part of the 700-billion-dollar rescue package approved by Congress last week.

He said the government was working to use its powers to buy up troubled mortgage assets at the heart of the crisis 'as soon as possible.'

German Finance Minister Peer Steibrueck said he was open to a similar plan for Germany. Britain passed its own bail-out package earlier this week.

But the G7 statement was a sign of the group's reluctance to offer a common, cross-border solution to shore up banks on the brink of bankruptcy in their own countries.

Italian Finance Minister Giulio Tremonti complained the statement was 'too weak' shortly before it was adopted, according to Bloomberg News.

Paulson denied that a common solution was the right way forward, arguing 'different countries have different financial systems.'

He called the statement an 'aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions.'

The G7 bloc also promised 'robust' guarantees for the savings deposits of consumers. Countries have raised guarantees for savings accounts to a variety of levels to date. Some in Europe such as Ireland have extended full guarantees.

IMF Managing Director Dominique Strauss-Kahn warned Friday that the only way to restore market confidence was through 'government intervention which is clear, comprehensive and cooperative among countries.'

Strauss-Kahn on Thursday said the world was on the 'cusp' of a recession after the IMF forecast global growth of 3 per cent next year. Growth below 3 per cent is considered a global recession by the IMF.

The G7 was one of a series of meetings this week in Washington between the world's finance ministers. Paulson will be hosting a gathering of the world's 20 leading economies on Saturday on the sidelines of the annual International Monetary Fund and World Bank meetings this weekend.