WASHINGTON, November 26 – US and European officials pledged billions of dollars in fresh cash on Tuesday to battle a credit crunch as a key survey showed wealthy nations face their worst economic slump in decades.
The Federal Reserve said it would pump a massive 800 billion dollars more into the economy to try to stabilize the staggering US financial system.
Up to 600 billion dollars will go towards purchases of mortgage securities, and a separate 200 billion dollars for asset-backed securities to help get credit to consumers.
The new efforts aim to thaw credit markets, promote liquidity and bring down borrowing costs for the housing market, which is at the center of the economic storm which has dragged down the global economy.
In Brussels, draft legislation set to be unveiled Wednesday called for a "significant" two-year stimulus campaign to jolt embattled European Union economies out of recession.
"Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment," said the draft document, obtained by AFP.
The European draft did not say how much the stimulus package could be worth, but commission chief Jose Manuel Barroso has said it should be at least one percent of EU output, which would amount to about 130 billion euros (170 billion dollars).
France plans to inject 19 billion euros into key industries as part of a stimulus package to kick-start the French economy, Finance Minister Christine Lagarde said.
In more gloomy news, a report by the Organization for Economic Cooperation and Development said the rich world now faces its worst economic crisis since the 1980s.
The OECD said eight million more people could be thrown be out of work by 2010, bringing the OECD area jobless total to 42 million,
Housing prices will continue to fall in many countries and there is a risk the crisis has further to run, with fragile banks exposed to new bad debts, the OECD said in a report on the impact of the global meltdown on 30 its industrialized member countries.
"Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s," OECD chief economist Klaus Schmidt-Hebbel said.
The OECD warned the United States was running up a huge national debt and would see its economy contract 0.9 percent in 2009.
The report predicted a decline in the eurozone by 0.6 percent, Japan by 0.1 percent and the overall OECD zone by 0.4 percent.
The US Commerce Department reported the US economy shrank by 0.5 percent in the third quarter, revising an earlier estimate of 0.3 percent.
The figures were called by "troubling" by the White House, which nonetheless said it was doing all it could to halt the slide.
In his second press conference in two days, president-elect Barack Obama vowed to erase wasteful spending from the deficit-ridden US budget while making wise investments to jump-start the economy.
"If we are going to make the investments we need, we also have to be willing to shed the spending that we don\’t need," Obama said.
"We can\’t sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness or exist solely because of the power of politicians, lobbyists, or interest groups."
France and Germany urged the European Union to ease fiscal rules to allow countries to spend more on recovery efforts.
President Nicolas Sarkozy and Chancellor Angela Merkel said in a joint newspaper article the EU Stability and Growth Pact — a requirement to hold a public deficit below 3.0 percent of gross domestic product — should be eased.
In Jerusalem, the Israeli finance ministry unveiled a 2.8-billion-dollar plan to restore faith in banks and pension funds after widespread criticism of an earlier economic bailout package.
In Argentina, President Cristina Kirchner proposed tax and investment incentives to help cushion the impact of the global financial crisis on the nation and encourage repatriation of capital.
She also unveiled a massive public spending plan to pump more than 21 billion dollars into Argentina\’s infrastructure.
Global stock markets struggled after Monday\’s massive gains. London\’s FTSE 100 index of leading shares rose 0.44 percent and the Paris CAC-40 gained 1.18 percent.
In a wobbly session on Wall Street, the Dow Jones Industrial Average rose 0.43 percent but the tech-heavy Nasdaq fell 0.50 percent. The broad Standard & Poor\’s 500 index climbed 0.66 percent.
In Asian trading, South Korean shares opened one percent higher and Hong Kong shares opened 0.9 percent higher, but Australian shares were 0.7 percent lower in early trade, and Japan\’s Nikkei stock index was down 1.30 percent by lunch, all reacting to lackluster performance overnight on Wall Street.