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Europe

G7 Vows Urgent, Decisive Action to Tackle Financial Crisis

The world's seven leading economies agreed to do everything in their power to beat a financial crisis threatening to plunge the world into recession, saying they will use "all available tools" to save tottering banks.

G7 ministers in Washington

G7 ministers vowed concerted, urgent action but details of the plan remain sketchy

At a crisis meeting in Washington on Friday, the Group of Seven (G7) finance ministers and central bank heads said they would use "all available tools" to stabilize the financial system and unblock credit markets that have come to a virtual halt in the United States and Europe.

"The G7 agrees today that the current situation calls for urgent and exceptional action," read a joint statement. Governments would "take all necessary steps to unfreeze credit and money markets."

An anguished trader at the Frankfurt stock exchange

The G7 is under pressure to act fast as global stocks plummet

The meeting in Washington came as stocks around the world plunged in record levels this week amid widespread fears of a global recession.

The finance ministers of Japan, Germany, Britain, France, Canada, US and Italy did not announce specific joint moves, but the group did suggest all seven governments were ready to shovel public funds into banks that are threatened with collapse for a lack of capital.

The seven countries promised to "ensure that our banks ... can raise capital from public as well as private sources in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses."

Germany working on British-style rescue plan?

On the sidelines of the meeting, some G7 members said they were planning to take equity stakes in their banks as part of a broader rescue plan and injection of capital.

Treasury Secretary Henry Paulson said the US would buy shares in financial institutions in return for taking on their troubled mortgage assets, under authority already granted in the 700-billion-dollar rescue package approved by Congress last week.

In a sharp policy reversal, German Finance Minister Peer Steinbrueck said a similar plan for Germany would be unveiled on Monday. Britain passed its own bailout package earlier this week.

"I'm convinced we won't be making any headway by taking case-by-case measures," Steinbrueck said in Washington. "We have to move away from discretionary behavior and try to find an approach that works for the sector as a whole."

German Finance Minister Peer Steinbrueck

Steinbrueck has vowed to unveil a new action plan for Germany on Monday

German newspaper Die Welt reported that the government is working on a British-style rescue plan for its financial sector. In a preview of an article to appear Saturday, the paper reported without citing sources that the government is considering a plan to guarantee interbank loans, offer direct credit and take stakes in financial institutions.

On Friday, German Chancellor Angela Merkel called Friday for a framework of international market rules -- in place of national regulations -- to prevent financial crises like the one now threatening the world economy.

"The economy is in the service of people," not the inverse, she said, and the role of politicians was to show this "clearly."

Speaking shortly before the G7 meeting, Merkel said: "We feel more than ever in these times that it is no longer enough to have national rules."

G7 plan short on detail

But the G7 statement was a sign of the group's reluctance to offer a common, cross-border solution to shore up banks on the brink of bankruptcy in their own countries.

Italian Finance Minister Giulio Tremonti complained the statement

was "too weak" shortly before it was adopted, according to Bloomberg News.

But Paulson defended the lack of specifics coming out of the G7 meeting and said no one had any reason to expect a one-size-fits all solution.

"Some in the markets are naive if they think that different countries with different financial systems, economies in different stages of development, economies with totally different structures ... and different political systems, different laws are going to come up with precisely the same policy to deal with the issues," he said.

He called the statement an "aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions."

World "on the cusp of recession"

The G7 bloc also promised "robust" guarantees for the savings deposits of consumers, but did not specify a level. A number of countries have raised guarantees to ease people's fears over the safety of their bank savings.

Some in Europe such as Ireland have extended full guarantees, prompting a few concerns over competition.

IMF Managing Director Dominique Strauss-Kahn warned Friday that the only way to restore market confidence was through "government intervention which is clear, comprehensive and cooperative among countries."

The G7 meeting came at a time when there have been suggestions that the bloc is an outdated tool to manage a crisis that has spread well beyond the United States and Europe. A group of 24 countries also meeting Friday urged wealthier nations to include them in talks on resolving the financial turmoil.

German Chancellor Merkel with French President Sarkozy and British Premier Brown

European leaders are working to quell a global financial maelstrom

Paulson will meet finance ministers from the Group of 20 -- which brings together the top advanced and emerging economies -- on Saturday, in a nod to the spreading nature of the crisis.

Strauss-Kahn on Thursday said the world was on the "cusp" of a recession after the IMF forecast global growth of 3 per cent next year. Growth below 3 per cent is considered a global recession by the IMF.

The International Monetary Fund and World Bank also hold their annual meetings in Washington this weekend.

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