Despite receiving a second breath of life, the 700-billion-dollar US rescue package may not restabilize global financial markets, financial leaders in Europe and beyond have warned.
European Central Bank head Jean-Claude Trichet says the US plan may not abate the financial crisis
European Central Bank head Jean-Claude Trichet warned that while the passing of the US bailout plan by the House of Representatives on Friday was a must, it may not spell the end of the market turbulence that has seen a collection of the world's most powerful financial institutions crumble, or in some cases tumble, in the last month.
"In America… as in Europe and the rest of the world, we have to face up to the major corrections (of financial markets) that are underway," Trichet told French radio Thursday.
"So we cannot say that after such and such an action, it is all over."
His sentiments were echoed in other parts of the world. "Even if the House passes the bill, we cannot expect markets to recover given the weak economy," said Kazuhiro Takahashi, head of equities at Daiwa Securities SMBC in Tokyo.
Nevertheless, European Commission President Jose Manuel Barroso lent his support to US efforts to prop up its economy with the bailout plan, labelling it a "step in the right direction.
If at first you don't succeed ...
The US Senate believes the revised bailout package will be passed by the House
After the original bailout bill was defeated Monday, Sept. 29, the legislation was revamped to include $150 billion in tax breaks for middle class American families and business, and insurance on bank deposits of up to $250,000, up from the previous limit of $100,000.
Limits on exorbitant severance packages for Wall Street executives responsible for the bad investments that contributed to the crisis have been maintained in the revised legislation.
US President George W. Bush pleaded Thursday to the House to follow the lead taken by Senate on Wednesday and approve the plan, insisting the issue had gone beyond affecting New York and Wall Street and was now hitting "hard-working people."
The markets have been turbulent this week amid fears the bill could once again fail ratification at the House.
US weakened politically and economically
Russian President Dmitry Medvedev says the crisis has heralded an end to US economic domination
Whether the bailout is ratified or not, many see the current crisis in financial markets as having catalyzed a significant political and economic weakening of the US.
Russian President Dmitry Medvedev was particularly forthright in his comments. On Thursday, he said the crisis had shown US global financial dominance was at an end and that there was a need for a new economic system.
"The time of domination by one economy and one currency has been consigned to the past once and for all," Medvedev said.
In Europe, too, the US is regarded as ailing. "They are no longer in a position of strength, on the economic level as well as the geostrategic level," France's European Affairs Minister Jean-Pierre Jouyet told Les Echos financial newspaper Friday.
Jouyet said the meltdown of the US financial system gave impetus to calls for greater financial market regulation in preference over the free-market approach blamed for the crisis.
"Europe today has a window of opportunity to make the case for standards and values in terms of regulation. The financial industry must be of service to the financing of the real economy," he said.
European leaders are split over the appropriateness of a US-style bailout for Europe, with German Chancellor Angela Merkel dismissing calls for a joint European fund to help underwrite the debts of flailing European banks.
Financial institutions from Britain, Germany, and the Benelux countries of Belgium, the Netherlands and Luxembourg have all required state intervention to stay afloat in the midst of the crisis.