25/09 Europe must heed advice from G-20 on debt crisis

The Yomiuri Shimbun

To prevent the financial crisis centering around Greece from spreading, advanced and emerging economies have united to prod Europe to quickly take necessary actions.

Finance ministers and central bankers from the Group of 20 economies, including Japan, the United States and European countries, as well as such emerging economies as China and Brazil, adopted a joint emergency communique in Washington on Thursday.

The statement declared the G-20 members will "deliver a strong and coordinated international response to address the renewed challenges facing the world economy." It also pledged to "take all necessary actions to preserve the stability of banking systems and financial markets."

These statements make sense.

Before the G-20 meeting, the Dow Jones industrial average on the New York Stock Exchange tumbled at one time more than 500 points, threatening to trigger a simultaneous global market meltdown. The euro also slumped to its weakest level against the yen in about 10 years.

The latest G-20 meeting was initially not scheduled to issue a joint statement. That it did so reflects its members' heightened sense of urgency over market turbulence and fears of a global business slowdown looming large.


200 bil. euros in potential losses

The Group of 20 narrowly managed to overcome the global financial crisis touched off by the collapse of Lehman Brothers three years ago, with all countries concerned taking appropriate measures.

The debt crisis in Greece, however, has exacerbated credit unrest in other countries, such as Italy, dealing a serious blow to the world economy.

The International Monetary Fund has warned the world economy is at grave risk.

Taking into account concerns over a possible government default by Greece, the IMF estimates potential losses by financial institutions in Europe may total 200 billion euros (about 21 trillion yen).

Every effort must be made to ensure market stability by stemming the vicious cycle emanating from Greece. It is important that the G-20's resolve, demonstrated by the joint statement, actually be pushed forward.

The G-20 joint statement also said the eurozone nations are expected to realize by the middle of October such measures to combat Europe's debt problems as expanding the functions of the European Financial Stability Facility (EFSF).


Beef up EFSF functions

The EFSF is a rescue fund targeted not only at Greece but also at such nations as Italy, but the envisioned expansion of its functions has been delayed because European countries are in disarray over how the debt problem should be addressed.

Europe must take the G-20 joint statement seriously and do its utmost--mainly at the initiative of France and Germany--to realize the statement's proposals for containing the debt crisis. Due consideration should be paid to the wisdom of boosting the capitalization of European financial institutions.

On the other hand, Greece, which has decided on a package of additional measures to rehabilitate its finances, including cuts in pensions, should further buckle down to the task of steadily slashing its fiscal deficit.

In the rest of the world, the U.S. economy remains on a downward course, with little tangible impact expected from its monetary easing policy, Japan has been struggling to recover from the Great East Japan Earthquake, and prices are surging alarmingly in China and other emerging economies.

Since each country faces its own difficulties in handling economic policy, as compared to the more universal concerns of three years ago, the G-20's solidarity will now be put to the test.

(From The Yomiuri Shimbun, Sept. 24, 2011)

(Sep. 25, 2011)

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