EU governments on Friday rushed to adopt U.K.-style financial rescue plans, with Germany close to adopting a scheme for €150bn in guarantees and capital injection for its banks.
The Spanish cabinet approved a €30bn fund, which can be raised to €50bn, to buy “quality” assets from banks, and it increased the deposit guarantee to €100,000. Ministers said the scheme would cost taxpayers nothing. Italy, which approved emergency legislation to recapitalise banks and inject equity on Thursday, said it would ban short selling in all stocks, not just banks and insurers, on the day after the U.S. lifted its ban.
Danish MPs approved a government scheme to back up all bank deposits and guarantees; and Dutch finance groups welcomed a government plan for a €20bn capital fund. France this week set up a “state participation society,” containing — so far — €1bn capital in municipal lender Dexia; but it made no further moves on Friday, saying its banks were “robust.”
Given Britain’s grim relations with Russia, it was unlikely that Moscow would ever praise Gordon Brown. But the Kremlin is considering a Brown-style plan to ease Russia’s dire banking problems. The government will set up a fund to buy “quality” assets from banks struggling with liquidity, with the country’s central bank putting in $15bn initially.
Russia’s two leaders, meanwhile, have wasted little time in blaming the crisis on the U.S. President Dmitry Medvedev memorably accused the U.S. administration of “economic egoism.” Vladimir Putin, the Prime Minister, said: “Confidence in the U.S. as the leader of the free world and the free market... has been undermined — for good, I think.”
Russia has been keen to downplay its own economic difficulties. Although regulators suspended trading again on Russia’s two main stock markets on Friday, TV news channels have been told not to use the words “collapse” or “crisis;” and there has been little mention of the flight of foreign investors from Russia.
The global slump hit the Indian economy hard on Friday, with the authorities slashing banks’ reserve requirement after the rupee slumped to a record low and overnight lending rates doubled. The stock market dropped 800 points, to 10,527 — less than half its level in January.
The Reserve Bank of India dropped the cash reserve ratio to 7.5 per cent from 9 per cent, its steepest cut since 2001, sending 600 billion rupees into the financial system. India’s central bankers had become alarmed after overnight rates soared to as much as 23 per cent in the money market and tighter liquidity saw the government call off a $2bn bond auction.
Annual industrial output growth was 1.3 per cent in August, its lowest in nearly 10 years and far below a revised 7.4 per cent expansion in July. Finance Minister P. Chidambaram insisted the figures were “not satisfactory... and not reliable.”
Lessons learned from Japan’s so-called lost decade of recession in the 90s have been credited with sparing it from the worst of the crisis. But this week proved the country had no reason to be complacent.
The Nikkei on Friday ended the worst week in its history with a fall of almost 10 per cent, the biggest one-day loss since the crash of 1987. Yamato, a life insurance firm with a 98-year history, has gone under with debts of ¥269bn — the industry’s first bankruptcy for seven years.
Despite official insistence that its economic fundamentals remain sound, all the major indicators show that the world’s second-biggest economy is teetering on the brink of recession again.
Brazil’s main stock market index fell more than 10 per cent in early trading, compounding weeks of heavy losses in which two years of gains in Latin America’s biggest economy were wiped out. The Ibovespa index fell 10.2 per cent to 33,303 in just the first half-hour after markets opened on friday. Trading was then halted for 30 minutes by a “circuit breaker” that takes effect when the index loses 10 per cent. Brazil’s currency, the real, weakened to 2.3 against the dollar.
Venezuela is bracing for the petro-state to curb its free-spending ways after President Hugo Chavez said his socialist revolution was not immune from the global financial crisis. State bonds on international markets have dropped to their lowest levels in five years and plunging oil prices are expected to squeeze next year’s budget. Consumer spending on cars and other big items has already started to shrivel.
Mr. Chavez says he hopes the crisis will prompt other Latin American leaders to forge ahead with his cherished plan for a Bank of the South, to counter the influence of the World Bank.
Cuba’s isolation from global financial markets has largely protected it from capitalist contagion, allowing it to watch the turmoil with relative equanimity. “It was expected,” Fidel Castro noted in his regular column in the communist party newspaper, Granma. He did not elaborate. Cuba is facing its own crisis after a series of recent hurricanes devastated its agriculture and infrastructure.
There are economic crises — and then there is Zimbabwe’s financial system. While much of the rest of the world is anxious about plunging markets, independent economists say the real inflation rate is in the trillions in Zimbabwe, but such numbers have ceased to mean anything to most Zimbabweans, who are limited to withdrawing the equivalent of a few pence a day from their bank accounts.
The Baghdad bourse is booming, with the general index of Iraq’s stock exchange up by nearly 40 per cent last month. The floor was heaving with investors and brokers on Thursday, many glued to their phones and eager to snap up bargains on the second day of trading after a national holiday. Hotels and banks were the hottest picks among the exchange’s 95 listed companies.
But Iraq’s 2009 budget depends on oil staying above $80 a barrel. Prices — above $140 in July — have fallen below $90 in recent months.
Developers and banks were among the hardest-hit by falls in Gulf Arab markets, with governments hoping that huge budget surpluses and non-oil sector growth would sustain them through the crisis. Dubai’s market was down by more than 20 per cent in four days of trading, while the Arab world’s largest, Saudi Arabia, fell by more than 17 per cent. Among the hardest-hit in Dubai were developers and banks.
However, only in a region where developers are announcing $100b construction projects even as markets collapse could the crisis be seen as a potential blessing. Some analysts say the current meltdown could bring a much-needed cooling of the overheated economies in the region. Meanwhile, OPEC members are zealously looking to guard prices, and recently announced a meeting for November - a month ahead of schedule.
Stock markets have plunged to their lowest levels in years, where they are open — the authorities in Jakarta kept Indonesia’s stock market closed for a third day in a row. Suspected intervention by the central bank failed to prop up the rupiah, which briefly touched 10,000 to the dollar, its weakest since December 2005.
Thai stocks fell by more than 10 per cent to trigger a temporary trading halt, before closing down 9.6 per cent. Bank stocks were particularly hard-hit. In Singapore, the Straits Times Index fell 7.3 per cent to its lowest close since December 2004. Malaysian stocks were down 3.6 per cent, and Vietnamese, 4.7 per cent.
“Everybody under the sun is selling,” said Gabriel Gan, head of sales trading at AmFraser Securities in Singapore. “There has been a total loss of confidence. We are seeing panic selling.
- Guardian Newspapers Limited, 2008
7 months ago