International Community Struggles to Ease Financial Crisis

The international community is going to great lengths to ease the global financial crisis that has spread from U.S. subprime mortgage defaults.

In recent days, the U.S. has tried to reduce the crisis through a large rate cut and economic stimulus package. However, Europe and Asia are looking at taking other major steps without having to lower interest rates due to concerns over inflation on the back of high international oil prices.

▽ Boost the economy vs. Stabilize prices

Though the Federal Reserve Board cut its federal funds rate by 75 basis points Tuesday, central banks in Europe and Asia have yet to announce any similar rate cuts. Rather, their priority is to stabilize consumer prices than to save the economy through rate cuts.

In his speech before the European Parliament on Wednesday, European Central Bank President Jean-Claude Trichet stressed, “In demanding times of significant correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations.”

British-based broadcaster, the BBC reported, “The Bank of England is highly likely to hold interest rates steady at 5.5 percent in its meeting next month due to worries over inflation.”

Reuters quoted a People’s Bank of China officer who wished to remain anonymous as saying, “China will gradually increase interest rates since the government’s priority in its monetary policy is to keep inflation in check.”

The Reserve Bank of New Zealand and the Central Bank of Brazil have also decided to keep their benchmark interest rates unchanged at 8.25 percent and 11.25 percent, respectively. Worries over inflation have forced the central banks to make this decision.

Only a few central banks have followed in the U.S. They include the Bank of Canada and the Gulf Cooperation Council which cut benchmark rates by 25 basis points and 75 basis points, respectively.

However, if economic conditions worsen, more countries are likely to lower their rates, similar to when central banks in Europe and Asia coordinated to provide liquidity following the FRB 25 basis point rate cut last December.

Slovenian Finance Minister Andrej Bajuk, who chairs the European Union presidency this year, said on Wednesday, “If the international society wants to prevent the recent crisis from relapsing, it should find fundamental solutions, not resort to makeshift measures.”

▽ U.S. still concerned about financial uncertainties, despite efforts

U.S. President George W. Bush stressed on Wednesday, “We certainly have countermeasures to deal with recent financial crisis.” U.S. Treasury Secretary Henry Paulson held meetings with leaders of the Republican and Democratic parties over how to implement an economic stimulus policy.

U.S. financial authorities also held emergency meetings with major Wall Street banks and agreed to set up a new fund amounting to 15 billion dollars (14.25 trillion won) to help bond insurers who have emerged as a new unstable factor in the financial market.

Russia voiced its support to help the U.S. to help ease the recent financial crisis. At the World Economic Forum held in Davos, Switzerland, Russian Finance Minister Alexei Kudrin called Russia a ‘haven of stability,’ as the country’s economy has been least affected by the recent financial crisis. “Russia will join the International Monetary Fund’s financial crisis structure program to deal with global market crisis,” he added.

Due to these recent measures, the New York Stock Exchange began upward movement on Jan. 23 after six days of declines. Similarly, the stock markets in Japan and China rose 2.06 percentage points and 0.54 percentage points, respectively, yesterday.

However, Europe’s stock markets, which turned bullish in the wake of the FRB’s rate cut, turned downward again, falling 2-5 percentage points on Wednesday. Experts observed that many investors still believe that the U.S. rate cut is not enough.

myzodan@donga.com kong@donga.com