Prime Minister Stephen Harper and his British counterpart, David Cameron, have issued dark warnings that the world is on the verge of another recession – adding their voices to a series of cautions from world leaders about the European debt crisis.
In welcoming the British Prime Minister, who was in Ottawa Thursday for a special joint session of Parliament, Mr. Harper noted both leaders were warning concerted action was needed to avoid a downturn.
"This is the most immediate and pressing problem facing the globe and it is at a perilous point and it does have to be dealt with," Mr. Harper said.
Officials scrambled as markets opened in Asia to correct the impression they were impervious to the anxiety in financial markets. In a surprise move, Group of 20 finance ministers and central bank governors issued a statement at the end of a working dinner in Washington, pledging to ensure that banks would have access to all the money they might need to weather the storm.
But, despite a day in which world stock markets, including Canada's benchmark stock index, plunged, there were few other signs of cohesion by economic leaders.
The cascade of stock prices Thursday was attributed by many to the Federal Reserve's warning on Wednesday afternoon that the U.S. economy faces "significant" threats, especially from financial turmoil linked to Europe's debt crisis.
Equity prices began their descent in New York and Toronto on Wednesday after the Fed's policy committee issued its dire warning. Stock markets fell in Asia and Europe, and resumed their decline in North America on Thursday.
The Dow Jones Industrial Average closed Thursday at 10,733.83, a 3.5-per-cent drop, and the S&P/TSX Composite Index lost 392.5 points, or 3.3 per cent, falling to 11,562.51. The price of oil and other commodities declined, including gold, which is often a haven for nervous investors. On Thursday, traders preferred the sanctuary of the world's reserve currency, causing the value of the U.S. dollar to surge. Canada's currency dropped two cents against the dollar to about 97.4 U.S. cents, the lowest in almost a year.
Yet the evaporation of billions of dollars in paper wealth did nothing to inspire a coherent response from global policy makers as they made their way to Washington for weekend meetings of the International Monetary Fund and World Bank.
Mr. Harper and the leaders of Australia, Britain, Indonesia, Mexico and South Korea sent a letter to French President Nicolas Sarkozy, the current head of the Group of 20 major economies, that prescribed what the members of the euro zone, the United States and China should do to bolster the world economy, while saying little specific about what they were prepared to do themselves.
U.S. Treasury Secretary Timothy Geithner said countries should "err on the side of growth" in setting their fiscal policies, yet appeared reluctant to aggressively push his counterparts in the G20 major economies to do so.
In Ottawa, Finance Minister Jim Flaherty criticized European leaders for being too slow in responding to doubts about the solvency of countries such as Greece, and said China and other relatively strong emerging-market countries should do more to stabilize the global economy, without specifying what.
Ministers and central bankers from those countries – specifically, the BRICS group, which includes Brazil, Russia, India, China and South Africa – said in a statement after a meeting in Washington that they are "open to consider, if necessary" providing financial support for Europe through the IMF, "depending on individual country circumstances."
However, at a press conference, ministers made clear that no rescue funds from the world's fastest growing economies are imminent, deflating suggestions last week that Brazil, China and others might seek to ease strains in financial markets by purchasing European sovereign debt. Indian Finance Minister Pranab Mukherjee said the BRICS countries would be part of any G20 "consensus," implying they had no intention of launching a rescue by themselves.
Many officials lamented the loss of cohesion since the end of the 2008 and 2009, when the G20 rallied to backstop the banking system, flush the financial system full of cash and implement stimulus programs to replace lost demand.
Yet no one country or group of countries is stepping forward to assure investors that there's a way forward. The United States and the Group of Seven industrialized countries, which for decades set the tone in the global economy, are diminished by weak economies and oppressive debt burdens. The G20, which includes developed nations and the bigger emerging markets, has been struggling to find a voice after naming itself the pre-eminent body for global economic co-ordination in 2009.
"We need a conductor," Mohamed El-Erian, chief executive of Pacific Investment Management Co., said during an event in Washington. "If we don't get that conductor, it is going to be a very messy orchestra."
G20 officials will continue to hold discussions Friday and Saturday during the IMF and World Bank meetings.
With a report from Reuters