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Asia, Europe reach consensus on financial crisis

Asian and European leaders said Saturday they have reached a broad consensus on ways to deal with the global financial meltdown and will present their views at a crisis summit next month in Washington.
China Asia Europe
Delegates gather at the 7th Asia-Europe Meeting in the Great Hall of the People in Beijing, China, on Saturday.Minoru Iwasaki / AP
/ Source: news services

Asian and European leaders closed ranks Saturday to try to bolster confidence among investors who fear that a global credit crunch has ushered in a deep and damaging worldwide recession.

The worst financial crisis in 80 years has forced countries to work together to find ways to help shore up a financial system crippled by banks fearful of lending to each other.

But with evidence mounting that Europe is already in recession, analysts fear that cooperation in shoring up banking systems could be threatened as governments begin to turn their attention to reviving domestic demand.

“We must use every means to prevent the financial crisis impacting growth of the real economy,” Chinese Prime Minister Wen Jiabao said at the end of a two-day summit of 43 Asian and European leaders in Beijing.

Chinese institutions held relatively little of the toxic sub-prime mortgage debt hobbling Western institutions, and were as such largely unscathed by the collapse of the U.S. housing market.

However, the Chinese economy overall is slowing and will be further hit by a decline in demand for Chinese exports ranging from toys to rolled steel. Growth in the third quarter slowed to 9 percent — down from 11.9 percent for all of 2007 — still the fastest rate among the world’s largest economies.

Wen’s remarks were delivered at the close of the two-day Asia-Europe Meeting in Beijing, where leaders of 43 nations issued a statement calling for new rules to guide the global economy and on the International Monetary Fund to take a leading role to aid crisis-stricken countries.

While short on details, the statement calls on the IMF and similar institutions to help stabilize struggling banks and shore up flagging stock markets. “Leaders agreed that the IMF should play a critical role in assisting countries seriously affected by the crisis, upon their request,” it said.

They also agreed to “undertake effective and comprehensive reform of the international monetary and financial systems,” the statement said.

Participants said the statement would provide the basis of a joint Asian-European approach at a Nov. 15 summit on the crisis in Washington involving the world’s 20 largest economies.

The document is one of the strongest endorsements yet for the Washington-based IMF, long known as the international lender of last resort, to take a leading role in the crisis.

French President Nicolas Sarkozy said the Beijing summit had raised expectations for solid results at the Washington summit.

Beijing participants “have all expressed their willingness for the Washington summit to be a place where we make some decisions, and we have all understood that it would not be possible to simply meet and have a discussion, we need to turn it into a decision-making forum,” Sarkozy said.

Governments have pledged around $4 trillion to support banks and restart money markets to try to stem the crisis and are considering tougher financial rules to guard against any repeat.

President Bush, who will host next month's global summit, said in a radio address on Saturday: “While the specific solutions pursued by every country may not be the same, agreeing on a common set of principles will be an essential step toward preventing similar crises in the future.”

Bush's remarks followed a sell-off in stocks from Tokyo to New York on Friday after private sector activity in the euro zone’s economy contracted at the fastest pace in at least a decade and data showed Britain’s economy shrank 0.5 percent in the third quarter — much worse than economists expected.

“The danger of a collapse (on financial markets) is far from over. Any all-clear would be wrong,” German Finance Minister Peer Steinbrueck said in an interview released on Saturday. “We are still in a dangerous situation,” he told Bild am Sonntag newspaper.

French Economy Minister Christine Lagarde, asked in a TV interview how long the crisis would last, replied: “I think that 2009 will not be a good year.”

Volatility has surged across financial markets and was particularly violent in foreign exchange trading on Friday, with a swathe of major and emerging market currencies sold aggressively in favor of the U.S. dollar and the Japanese yen.

Russian officials pledged on Saturday to prevent sharp fluctuations in the ruble, but said there was no need to limit capital movements or change the trading corridor of the currency, which hit two-year lows versus the dollar this week.

Russia runs a managed float of the ruble against a currency basket and the central bank has spent billions of dollars of its reserves — the third-largest in the world — to keep the ruble’s rate within a fixed corridor.

“Just because the global financial crisis has hit our shores does not mean that the ruble has to be significantly devalued,” Alexei Ulyukaev, the first deputy chairman of the central bank, said in comments broadcast on Ekho Moskvy radio.

Emerging economies have been particularly hard hit by the crisis, forcing many to plunder their foreign exchange reserves to defend their currencies and financial systems.