WASHINGTON, October 10 – In the face of a growing financial firestorm finance chiefs from the Group of Seven nations were due to meet in Washington on Friday in search of a solution.
Financial authorities in the major powers have already pumped massive amounts of liquidity into the global banking system in an effort to unclog credit markets and joined in a coordinated cut in interest rates.
But panic was still gripping markets, which have hit multiyear lows in the United States and most other countries amid loss of confidence.
Stock exchanges from Tokyo to London suffered more staggering losses Friday, adding to the turmoil for finance ministers from the Group of Seven richest nations to discuss in Washington.
The meeting will bring together ministers and central bankers of the United States, Germany, Japan, France, Britain, Italy and Canada.
US President George W. Bush agreed to host finance ministers from the G7 on Saturday. Bush vowed to take "strong action" against the crisis and emphasized "our common desire to work with our European friends to develop a best-as-possible common policy."
Marc Chandler, analyst at Brown Brothers Harriman, said despite the grim outlook, the G7 still has some options to help calm the storm.
"We are hesitant to spread rumours, but there is increasing speculation that the G7 meeting could take another major step and that is to guarantee all inter-bank lending," he said.
"This talk is having a demonstrable impact on the interest rate markets. It is difficult to evaluate the likelihood, but it is important to note that officials generally recognize that current measures are not yet sufficient to turn the corner of the crisis."
John Ryding, an economist at RDQ Economics, said the move by Britain to inject capital into troubled banks offered a "glimmer of hope," especially after Washington said it would consider similar actions.
"It will require the G7 finance ministers on Friday to see the actions that need to be taken but the pieces of the puzzle to the solution of the financial crisis will be in front of the finance ministers when they meet in Washington," Ryding said.
"For this, we have to thank the (British) Prime Minister Gordon Brown and his Chancellor of the Exchequer Alistair Darling. Our hats are off to them and, if Treasury Secretary Henry Paulson follows their advice, we could finally have found our wider firebreak."
Brown urged world governments Friday to follow Britain in its "ground-breaking" moves to put money into struggling banks and guarantee inter-bank loans, as Britain did this week in a multi-billion-pound rescue package.
In an article in The Times newspaper, Brown said he hoped the encounters in Washington would culminate in a "leaders meeting in which we must lay down the principles and the new policies for restructuring our banking and financial system all around the globe."
But in a sign that unity was weak, the head of the International Monetary Fund, Dominique Strauss-Kahn, said that European Union countries should work together and avoid unilateral steps to fight a global financial crisis.
"Cooperation and coordination in actions is the price of success. All kinds of cooperation have to be recommended," Strauss-Kahn said at a news conference ahead of the annual meetings this weekend of the IMF and World Bank.
Unilateral action "has to be avoided, if not condemned," he said.
BNP Paribas analysts said there were positive signs.
"Signs of hope are finally emerging that a globally coordinated approach to the financial crisis could be agreed between policy makers at Friday\’s G7 meeting," they wrote in a research note.
"Indeed, the UK\’s three-pronged approach to the crisis announced Wednesday has been gaining praise, and there are also suggestions that the US could adopt similar measures.
"Speculation that a coordinated approach could be close has been heightened by reports that Bush has called German Chancellor (Angela) Merkel to explain the importance of coordinated measures. Germany\’s reluctance has so far prevented the eurozone adopting a coordinated approach."
The US approved a 700-billion-dollar rescue package for financial firms last week that will see the Treasury buy up toxic debt from banks in a bid to encourage them to continue lending.
On Wednesday, leading central banks unleashed coordinated interest rate cuts in their latest attempt to counter the financial problems caused by bad debts linked to declining house prices in the United States.
Japanese Premier Taro Aso said Friday he would call an emergency G8 summit if finance chiefs meeting in Washington do not reach a deal on the global credit crisis.
"If things cannot be concluded, as the chair we will call one," Aso told reporters in Tokyo.
Japan is the chair this year of the G8, which comprises G7 countries plus Russia.
The G7 meeting in Washington will also include a wider G20 meeting which includes financial leaders of other major economies including Russia, China and India.