EU Seeks Coordinated G-7 Response to Credit Squeeze

Meera Louis and Simon Kennedy
Bloomberg
Sunday, April 6, 2008

European finance ministers will press their counterparts from the Group of Seven major industrialized nations for greater coordination in battling the credit squeeze that threatens global economic growth, according to the draft of a confidential report prepared for next week's meeting.

Central banks and governments around the world have struggled to rein in a surge in the cost of credit that began in August. Banks and securities firms have posted $232 billion in asset writedowns and credit losses stemming from the collapse of the U.S. subprime mortgage market.

``It is important to coordinate global responses, not least within the G-7, to the challenges the world economy is facing in terms of financial-market turbulence,'' according to the European document, which was discussed by euro-area finance chiefs yesterday. ``Authorities must remain vigilant to further policy responses that may be needed, in particular aimed at stemming mechanisms with a potential to amplify the effects of the turmoil,'' the paper, which was obtained by Bloomberg News, said.

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The final version of the report will be presented to finance ministers and central bankers from the G-7 when they meet in Washington on April 11 to discuss the economic outlook. European Central Bank President Jean-Claude Trichet said yesterday that international monetary policy makers continue to discuss possible solutions to the financial crisis.

`Bad News'

``The general sentiment is that the turmoil is not over, that there is still possible bad news in the pipeline,'' Italian Finance Minister Tommaso Padoa-Schioppa said in an interview with Bloomberg Television in Brdo.

While central banks say they are in constant communication, there has been little in the way of a uniform response beyond December's decision to auction dollars. The U.S. Federal Reserve has slashed its benchmark rate by 3 percentage points since last August, while the ECB has left its rate at a six-year high of 4 percent. Each G-7 central bank also has differed on how much money it has been willing to pump into the banking system and what collateral it is willing to accept.

Full article here.

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