TOKYO — Global policymakers held an emergency conference call yesterday to discuss the twin debt crises in Europe and the United States that are causing market turmoil and stoking fears of the rich world sliding back into recession.
After a week that saw $2,95 trillion wiped off global stock markets, political leaders are under mounting pressure to reassure investors that Western governments have both the will and ability to reduce their huge and growing public debt loads.
South Africa said finance deputies from the Group of 20 major economies discussed the European debt crisis and US sovereign rating downgrade on yesterday morning in Asian time zones.
A Japanese government source said finance leaders from the Group of Seven big developed economies would also discuss the crisis and may issue a statement afterwards, although the timing of such a call was unclear.
The European Central Bank (ECB) was scheduled to hold a rare Sunday (yesterday) afternoon conference call. Investors will be anxiously looking for the central bank to start buying Italian and Spanish debt today to stabilise prices, a move that has split the ECB governing council. French President Nicolas Sarkozy, who chairs the G7/G20 group of leading economies, conferred with Britain’s Prime Minister David Cameron on Saturday.
“They discussed the euro area and the US debt downgrade. Both agreed the importance of working together, monitoring the situation closely and keeping in contact over the coming days,” a spokesman for Cameron said.
In Washington, a White House economic advisor castigated ratings agency Standard and Poor’s for downgrading the United States’ credit rating to AA-plus from AAA, a move that over time could ripple through markets by pushing up borrowing costs and making it more difficult to secure a lasting recovery.
Washington’s Asian allies rallied round the battered superpower, with Japan and South Korea both saying their trust in US Treasuries remained unshaken.
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“I expressed our country’s position on the (G20 conference) call that there will be no sudden change in our reserve management policy,” South Korean deputy Finance minister Choi Jong-ku said by telephone, referring to Seoul’s heavy ownership of US bonds out of more than $300 billion in foreign reserves. There’s no alternative that provides such stability and liquidity,” added Choi, who declined to elaborate further on the G20 discussion.
