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Finance chiefs heading for talks

business Updated: Oct 09, 2008 11:45 IST
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Finance chiefs from the world's richest nations meet in Washington on Friday for a crucial but uncertain meeting at a time of unprecedented fear about the global financial system.

The Group of Seven meeting will bring together finance ministers and central bankers from the United States, Germany, Japan, France, Britain, Italy and Canada for some collective-thinking on the credit crunch and crashing stocks.

They are to be joined by counterparts from emerging markets including Brazil Russia, India and China for an impromptu gathering of the expanded so-called G20 group.

The United States finds itself in a rare position of weakness, facing many allies that have been highly critical of its economic policy and regulatory system blamed for the problems.

The gathering will be closely watched by investors, who are eager to see solutions and cross-border action by the world's leading powers to help a return to normal lending practices and calm stock markets.

US Treasury Secretary Hank Paulson said Wednesday the meeting would be a forum "to discuss the steps that each of us are taking to confront this crisis and ways to further enhance our collective efforts."

Treasury Under Secretary David McCormick said the meeting would be "heavily focused on current economic conditions, financial market developments and our collective and individual policy responses to recent financial market turmoil."

A final statement from the group is expected late on Saturday.

Paulson played down the possibility of a one-size-fits-all response to the crisis, however, stressing the different challenges by each country.

The four European members of the G7 have themselves been unable to find a common response and other countries have declined to follow the example set by the United States despite pleas from Paulson.

The US approved a 700-billion-dollar rescue package for financial firms last week that will see the Treasury buy up toxic debt from banks in a bid to encourage them to continue lending.

A European source told AFP at the beginning of the week that it was difficult to predict what would be in the final communique given the rapid developments in the crisis.

On Wednesday, leading central banks unleashed coordinated interest rate cuts on Wednesday in their latest attempt to counter the financial problems, caused by bad debts linked to declining house prices in the United States.

Japanese Prime Minister Taro Aso on Tuesday urged the G7 to send a "strong message" on the market turmoil.

"If the G7 fails to send a strong message, it will have a big impact which I am concerned could spread to Japan," Aso told reporters.

"I would like them to make an effort to reach an agreement that everybody can support," he said.

Tension is expected at the meeting given recent comments by countries affected by the crisis.

German officials in particular have been openly critical in the past weeks, saying the United States and Britain had delayed for years efforts to regulate financial markets that were out of control.

"The United States lacked laws, a regulatory framework that would have prevented" what Social-Democrat Finance Minister Peer Steinbrueck called "uncontrolled speculation" in an interview on September 28.

"The USA will lose its superpower status in the global financial system. The world financial system is becoming multi-polar," Steinbrueck said on September 25 in a speech to parliament.