• Home
• /
• Business

Asia, Europe pull together to ease financial crisis

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 in recession, analysts worry that cooperation in shoring up banking systems could be threatened as governments begin to turn their attention to reviving domestic demand.

"We need to enhance cooperation between all countries, because only with cooperation can we create the strength to overcome hardships," Chinese Premier Wen Jiabao said at the end of a two-day summit of 43 Asian and European leaders in Beijing.

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

Wen said countries needed to strike a balance between innovation and regulation and between savings and consumption.

"We need financial innovation, but we need financial oversight even more," he said, adding that China's priority was to spur domestic demand to ensure the country maintained fairly fast, steady growth.

Gulf Meeting

In the Gulf, finance ministers and central bank governors said at a meeting to discuss coordinating policy that they would discuss directing more government funds into banks and regional stock markets, Al-Arabiya television reported.

Saudi Arabia, the United Arab Emirates and four other Gulf states have so far adopted separate responses to ease the pressures of the liquidity crunch on their banking sectors.

They would also look at possibly revising investment plans abroad, Al-Arabiya said, without giving a source.

Any significant redirection of Gulf investment to domestic markets could be a concern for banks and other firms in the West which have eyed the huge sums in the region's state-run sovereign wealth funds as a potential source of capital while European and U.S. credit and share markets are seized up.

A senior Gulf official at the meeting said most were worried about the oil price.

Oil fell nearly $4 a barrel on Friday, dampened by fears of global recession and slowing fuel demand despite an OPEC agreement to cut output.

On Friday, 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 -- a much worse performance than economists expected.

A series of corporate profit warnings and job cuts triggered a sell-off in stocks from Tokyo to New York.

"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.

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.

Officials in Washington said those economies that qualify for a proposed new liquidity fund at the International Monetary Fund could be eligible for an unusually high level of funding.

Although the details of the package were not finalised, the plan, which may offer countries up to five times their IMF quota, could be approved as soon as next week.

It would allow certain emerging market economies to exchange local currencies for U.S. dollars to ease short-term credit strains, the officials said.

Iceland, where the financial system has all but collapsed, called on the IMF on Friday for $2 billion to help fix its broken banking system, restart currency trading and soften the blow from the global downturn.

The Washington-based lender said its staff in Reykjavik and Icelandic authorities had reached agreement on an economic programme that would be supported by the financial assistance.

Bank Bail Outs

Across Europe, banks have turned to government funds to ensure they could operate.

Belgian banking and insurance group KBC is seeking 3.5 billion euros from the government to boost capital, Le Soir daily reported.

The newspaper said on Saturday the move was to give a clear, positive signal to the market before it opened on Monday after the bank's shares touched a 12-year low on Friday. A KBC spokeswoman said the bank was looking at various alternatives.

In the United States, PNC Financial Services Group Inc agreed to purchase ailing Ohio-based National City Corp in a government-supported $5.6 billion deal that will create the No. 5 U.S. bank by deposits.

PNC was one of four regional banks that said they would receive cash infusions under a $250 billion bank recapitalisation programme, part of the U.S. Treasury's wider $700 billion financial services rescue package.

The Treasury, which has already committed half that sum to nine of the largest U.S. banks, was studying how it could give relief to bond and mortgage insurance firms under the programme, two sources familiar with the deliberations said.