Following a severe global downturn most visibly characterized by a steep plunge in world stock indices last week, world leaders have failed to offer a coordinated, unified plan to attack the international financial meltdown.
World finance leaders met in Washington, DC over the weekend at an emergency economic crisis summit hosted by the White House. US President George W. Bush convened a meeting of G7 finance chiefs including Britain, Canada, France, Germany, Italy, Japan, and the United States. Also in attendance: Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), and World Bank President Robert Zoellick.
The finance ministers were previously scheduled to gather in Washington for a World Bank meeting and IMF talks.
Although acknowledging broad agreement on the danger of the financial meltdown, the chorus of leaders appeared to offer a unified display of stark concern even as individual governments faltered in national responses to what amounts to an economic dislocation, financial implosion, and loss of confidence without recent precedent.
The lack of recent historical precedent as well as an absence of institutional memory of past economic crises make for confused policy responses. Economic experts are searching as far back as the 1920s and 1930s for models. The most recent financial crisis comparable to the current landscape may date to the 1970s.
That confusion was evident as early as late last week when US Treasury Secretary Henry M. Paulson, Jr. announced changes to the American government's approach to the $700 billion bailout package recently enacted into law.
The Bush Administration had as recently as September 23rd rejected approaches to the economic crisis that would have injected capital directly into United States banks in exchange for partial ownership or nationalization. The initial reluctance was primarily due to philosophical aversion by the president's own political party and Republican orthodoxy against direct government intervention in private business.
That philosophical reluctance changed Friday evening following a battering of stocks on Wall Street and around the globe last week. Paulson amended the proposed Treasury plan saying the new immediate thrust of the monies appropriated by the Congress would be spent on recapitalizing American financial institutions with the government claiming an ownership stake, rather than buying up toxic or illiquid assets tied to US mortgages.
The new policy of nationalization of American financial institutions is the first such measure of comparable import since the Great Depression of the 1930s.
That direct approach is much more in line with the UK program unveiled by British Prime Minister Gordon Brown and Alistair Darling, Chancellor of the Exchequer.
Despite the apparent policy confusion and an only dawning perception of the severity of the current crisis, the assembled world leaders put on a serious face. Appearing in the White House Rose Garden on Saturday, President Bush accompanied by the G7 leaders and the directors of the IMF and World Bank said, "All of us recognize that this is a serious global crisis, and therefore requires a serious global response, for the good of our people.”
Finding a way forward may be more difficult. Although the UK's Brown has pledged that Britain will "lead the way" to a common Eurozone response to the financial crisis, disagreement and quarrels still dominate including Britain's decision to take legal action against, rather than coordinating economic policy cooperation with, the tiny European island state of Iceland following the collapse of the Icelandic financial system last week.
The quarrel between the UK and Iceland involves the failure of Landsbanki (Icesave internet) where Britons were heavily invested. Iceland teetered on the edge of bankruptcy last week and was one of several countries forced to halt all trading on national stock exchanges.
The British government's punitive measures against Iceland mirrored and went beyond public UK government irritation with neighboring Ireland following Taoiseach Brian Cowen's announcement that the Republic of Ireland would unconditionally guarantee all commercial banking accounts. Britain expressed jealousy that Ireland was moving unilaterally to restore confidence and wondered aloud if UK savers might rush to deposit savings in Irish, rather than British, banks.
Prime Minister Brown, BBC reports, "in an article in the Sunday Mirror, said he would urge Europe to copy his blueprint." The British Prime Minister, facing rising political opposition at home, spoke with French President and current European Union (EU) head Nicolas Sarkozy over the weekend ahead of an upcoming emergency conference of European leaders in Paris following the G7 talks in Washington.
Brown's primary domestic opponent, David Cameron of the UK's Conservative Party, derided the prime minister's remarks and called for the British government to offer a "real plan for the real economy."
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