Rich nations braced for fresh storm

OFFICIALS FROM the Group of Seven leading economies hold an emergency meeting in London today with one item on the agenda: how to respond to the crisis that toppled the South-east Asian tigers a year ago, reached Russia this summer, has just landed in Brazil and now looks certain to knock on to us. Leaders of the Western world have decided it is finally time for action.

A likely outcome of today's meeting is an agreement that the G7 central banks will stand poised to co-ordinate a reduction in interest rates if - when - Wall Street crashes. In a desperate measure last week the Bank of Japan took its already low interest rate closer to zero. But traders in the financial markets now expect both the US Federal Reserve and the Bank of England to make borrowing cheaper, keeping a head of steam under the US and UK economies and helping out the banks being hammered by losses on their loans to Asia and Russia.

Alan Greenspan, the Fed chairman, went out of his way in a recent speech to indicate that he stood ready to lower US rates in response to the world crisis. Last week, after its decision not to cut loan rates just yet, the Bank of England issued an unprecedented statement that it would be monitoring the risks closely. The markets read this as a signal that it might step in before next month's formal meeting of its Monetary Policy Committee.

While many critics would argue that the G7 response has come not a moment too soon, something has happened to make the authorities seriously worried. That something is that for the first time the turmoil in emerging markets seems likely to darken the economic outlook in the West. President Bill Clinton, for one, will fear repercussions of a slowdown or recession after seven years of healthy growth. European politicians do not want to launch the euro in three months into the stormy seas of a world financial crisis.

For all the panic last year about the effect of a slump in Asia on the West, it was never likely to be very big. Individual companies have suffered a loss of exports but the scale of US and European trade with Asia was too small to do much damage to overall growth rates. Even adding Russia to the calculation would not necessarily have resulted in serious economic damage to the West if stock markets in New York and London, Paris and Frankfurt, had not caught the contagion. There has been no big crash yet, but there might be, and share prices are already well down this year.

American jobs depend on Wall Street because the long US boom has been increasingly fuelled by consumer borrowing. The American savings rate has dropped to zero, give or take a decimal point or so. Why save the old-fashioned way when the paper value of your mutual fund investments in shares, or your executive stock options, have made you wealthy? So, in contrast to the 1987 crash, which was followed by a boom, a 1998 one could spell bust. And bust for the US means the same for the UK and the rest of Europe. If market rumours that some big investment banks are in danger of failing are true so much the worse.

Struggling banks withdraw credit from good customers as well as bad ones, and there are clear signs of a "credit crunch". At the start of this year Eddie George, Governor of the Bank of England, told The Independent that the world financial system already faced its most serious crisis since the Latin American debt crisis of the early 1980s. By now, it is clearly the worst since the early 1970s, and the gravest most of the current generation of officials and politicians have had to tackle.

Yet, contrary to the conclusion drawn by some hopeful pundits, this crisis does not draw down the final curtain on global free-market capitalism, in a neat symmetry with the end of Communism nearly a decade ago. While capitalism itself will survive, the argument goes, Anglo-Saxon triumphalism has had its come-uppance as the financial turmoil proves that one size of capitalism decidedly does not fit all.In fact, the crisis demonstrates exactly the reverse.

America is the last country on earth to be affected by a crisis that has snowballed precisely because other nations have not imitated America well enough. Any country that wants the benefits of membership of the club of advanced economies is, it seems, going to have to turn itself into pretty much a carbon copy of models that range from the Anglo-Saxon all the way to the German. (There is a big question-mark over the Japanese version.)

Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' embraces politics, religion, warfare, courage, love and loyalty, say creators
Sport
Sergio Romero saves Wesley Sneijder's penalty
world cup 2014But after defeating the Dutch, Lionel Messi and Argentina will walk out at the Maracana on Sunday as underdogs against Germany
Sport
Scoreboard at the end of the semi-final World Cup match between Brazil and Germany at The Mineirao Stadium in Belo Horizonte
Sport
'Saddest man in Brazil' takes defeat with good grace, handing replica trophy to German fans
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleThe Game of Thrones author said speculation about his health and death was 'offensive'
Arts and Entertainment
Martin Freeman and Lauren O'Neil in Jamie Lloyd's Richard III
theatreReview: The monarch's malign magnetism and diabolic effrontery aren’t felt
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Arts and Entertainment
Miley Cyrus has her magic LSD brain stolen in this crazy video produced with The Flaming Lips
video
Arts and Entertainment
In his own words: Oscar Wilde in 1882
theatreNew play by the Oscar Wilde's grandson reveals what the Irish wit said at his trials - and what they reveal about the man
News
people
Arts and Entertainment
Unless films such as Guardians of the Galaxy, pictured, can buck the trend, this summer could be the first in 13 years that not a single Hollywood blockbuster takes $300m
filmWith US films earning record-breaking amounts at the Chinese box office, Hollywood is more than happy to take its lead from its new-found Asian audience
News
The garage was up for sale in Canning Place Mews for £500,000
newsGarage for sale for £500,000
Life and Style
tech
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Mobile App/IOS Developer (C#, ASP.NET, .NET, MVC)

£50000 - £60000 per annum + Benefits + Bonus: Harrington Starr: Mobile App/IOS...

Front End Developer-JavaScript, Angular J.S, HTML, CSS, ASP.NET

£40000 - £45000 per annum + Benefits + Bonus: Harrington Starr: Front End Deve...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil