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.)