Financial leaders in search of bold solutions to global economic chaos wrapped up another weekend of talks on Sunday, offering little more than vague promises and conflicting ideas on what they should do next.
As the failure of Group of Seven finance ministers and central bankers to produce decisive action and present a united front against the threat of a cross-border financial meltdown slowly sunk in, analysts said jittery world markets were set to react with shrill disappointment when they reopen today.More than six hours of closed-door talks among members of the exclusive G7 club produced a commitment to boost growth in their own economies and help those less-fortunate nations whose economies have already been consumed by the global firestorm.
That was about as much as the world's financial powerhouses managed to agree on. Offers of concrete action, such as a joint cut in interest rates to boost growth and give ailing markets a much-needed shot in the arm, were conspicuously absent from a carefully worded statement released after their meeting.
"The G7 hasn't really done anything useful or constructive for the last decade, so nobody should be too disappointed about this," said Adam Posen, an economist with the International Institute for Economics, a Washington-based think tank.
The financial leaders of the United States, Japan, Germany, Britain, France, Italy and Canada warned that the crisis now gripping Asia and many other emerging markets was posing a mounting downside risk to their economies. Washington urged both Europe and Japan to do their part for global stability.
U.S. Treasury Secretary Robert Rubin, in charge of the fortunes of the world's biggest economy, said G7 leaders sensed the urgency of doing something - anything - right away.
"The had . . . a very energetic consensus that the balance of risks in the global economy has shifted and that the immediate need is to strengthen growth and sustain capital flows in emerging markets," he said.
While the group pledged to "explore" a broad new U.S. plan to provide struggling countries easier access to fresh capital before they get overwhelmed by economic turmoil, a much-hyped Japanese idea to offer its ailing neighbors some $30 billion in emergency aid did not even get a mention in the G7 statement.
Also absent from their communique was any direct reference to monetary policy that so many in financial markets had been hoping for as a sign of the G7's seriousness about bolstering the ailing world economy. After the United States cut official interest rates last week, calls for similar, coordinated steps by other G7 members had become increasingly loud.
But most Europeans, already under fire from Washington for their sluggish growth rates and sky-high unemployment, have insisted there is no need for them to cut rates right now.
Germany specifically has resisted such calls, arguing its rates are already at historically low levels and that a rate cut would complicate the process of bringing Europe's rates to a common level ahead of the continent's monetary union.
European countries wanting to join the single currency by January 1999 have to reach a common interest rate level by the end of this year.
Britain, which has no plans to join the single currency for now, also poured cold water on the idea of joint rate cuts.
"Just because monetary policy in a variety of places may now have to be easier than it otherwise might have been, this does not necessarily mean coordinated cuts in interest rates," Bank of England Governor Eddie George told reporters.
Signaling the depth of the fault lines running between Europe and the United States, the G7 text explicitly referred to the European's insistence that every country should go its own path. "We also agreed that the challenges that face each of our economies differ," the statement stated dryly.
The strained relations between Washington and Tokyo, capitals of the two top world economies, also showed few signs of improvement following the high-level talks as the G7 urged Japan once again to pull itself up by the bootstraps and get its ailing, debt-ridden financial sector sorted out.
The mounting troubles in Brazil, widely feared to be the next country to fall prey to the global financial wildfire unless the IMF, helped by the G7, comes up with a rescue package soon, similarly failed to evoke much reaction among the financial leaders - at least in their public statements.
It will be early next year before the ministers and central bankers are scheduled to meet again. Britain said they may meet again this year if they make progress on lofty plans to reform the world's creaking financial system.
"Until we see real action from the G7, the markets are not going to react positively, even though the intentions have been moving in the right direction," said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. "But unfortunately they haven't been matched by action."