WASHINGTON ? US President George W. Bush and European leaders on Saturday agreed to hold a series of global summits on the financial crisis as the world grapples with its biggest economic debacle since the Great Depression in the 1930s.
Just hours after Bush, French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso announced their initiative to hammer out a global action plan, South Korea pledged $130 billion in state guarantees and capital injections to shore up its banks.
Also joining worldwide efforts to stabilize the beleaguered banking sector, the United Arab Emirates said it would inject the equivalent of $19 billion into long-term bank deposits. Oman?s Chamber of Commerce and Industry also called for a cash injection into banks for financing.
Bush said he would host the first summit that would be held soon after the Nov. 4 presidential election.
A joint statement, issued after Bush?s meeting with Sarkozy and at the presidential retreat in Camp David, said the first summit would focus on ?principles of reform? needed to fix the world?s financial system.
?Later summits would be designed to implement agreement on specific steps,? the joint statement said, adding that other world leaders would be contacted beginning next week.
Bush is set to leave office in January and a White House spokesperson said he did not know whether the newly elected president, either Democrat Barack Obama or Republican John McCain, would be invited to attend the first summit.
Japan, which chairs the Group of Eight (G-8), declared its backing for the summits. But its finance minister warned that the top-level meetings would only be worthwhile if they produced concrete results.
?If a summit were to be held, it should come up with a strong action plan or a decision,? Finance Minister Shoichi Nakagawa said on Sunday. ?I think the prime minister is making preparations based on this understanding.?
Lender of last resort
In Seoul, authorities rushed to implement their rescue plan to bolster local markets, which have been plagued by worries that the high level of foreign borrowing by Korean banks makes Asia?s fourth-largest economy particularly vulnerable to the 14-month-old credit crisis.
?The government has decided to join in global coordinated efforts to stabilize financial markets and we?ll continue to provide preemptive, decisive and sufficient measures to this end,? Finance Minister Kang Man-soo told reporters.
?We have to do our best to tide over the financial crisis and stop an economic slump,? Prime Minister Han Seung-soo said.
His government offered up to $100 billion in guarantees for bank borrowings in foreign currencies, and a $30-billion injection into the banking system.
Despite foreign reserves of almost $240 billion, South Korea is seen as vulnerable to the current turmoil because of a surge in short-term foreign borrowing by its banks in the past year as US interest rates fell.
The credit crunch was complicating efforts to roll over those loans, causing a scramble for dollars and a 40-percent plunge in the value of South Korea?s currency, the won, against the greenback this year.
The won has fallen to its lowest level since the Asian financial crisis 11 years ago, as foreign investors sold off a record 30 trillion won of local shares.
Analysts welcomed the measures taken by Seoul, saying they should soothe local markets. They said the central bank would likely follow up with trimming interest rates as early as next month to prop up sagging domestic demand.
?The government has sent a strong signal to market players in a panic that they will stand as lender of last resort in a crisis,? said Hong Sun-young at Samsung Economic Research Institute.
Billions of dollars not enough
Wild swings in stock markets amid gathering fears of the worst global recession since the 1930s showed hundreds of billions of dollars committed to bank bailouts were not enough, prompting calls for a global summit and far-reaching reforms.
?It would be wrong to challenge the foundations of market economics. But we cannot continue along the same lines because the same problems will trigger the same disasters,? Sarkozy, whose country holds the rotating EU presidency, said on Saturday.
Sarkozy has been urging a broad overhaul of the so-called Bretton Woods system of international finance and commerce that was put up in the 1940s in the aftermath of the Great Depression.
Critics say the post-World War II institutions that came out of Bretton Woods?the World Bank and International Monetary Fund?are ill-equipped to deal with the global economy and complexities of modern finance.
It has also become clear to policy makers that the challenge is too big and markets too interconnected for any country to act alone.
Governments around the world have pledged about $3.2 trillion?about the same as the economic output of Germany?in a variety of schemes that guarantee bank deposits, bank-to-bank lending, and taking stakes in banks to shore up their capital.
That came on top of massive cash injections into money markets and coordinated interest rate cuts. The measures offered some respite to money markets, which seized up gripped by fears of more bank failures after last month?s bankruptcy of Lehman Brothers.
China blames West
The financial crisis has raised fears across the globe that many countries could enter into recession?the contraction of an economy for two consecutive quarters. Many analysts, however, are predicting a prolonged recession.
But for China, one country that is confident it will survive the financial meltdown, the current crisis is America?s fault.
The official Xinhua news agency blamed US consumers for fueling the crisis with reckless spending, saying in an opinion piece from New York: ?Many people think that you cannot de-link the consumer concept of ?eating the corn while it is still on the stalk? and this financial crisis which has a deep impact.?
The current crisis began with high-risk or subprime US home loans last year. The loans, repackaged as complex investment instruments loosely known as derivatives, were resold to investors and banks around the world.
When Americans defaulted on those loans, this set off a chain reaction through the global financial system, eventually leaving banks short of cash and hesitant to make the interbank loans essential to the system?s smooth functioning.
Signs of economic pain abound worldwide.
US consumer confidence and new home construction continue to tumble, reinforcing views that the world?s biggest economy was in or close to a recession and the outlook for Europe and Japan was similarly grim.
In Britain, finance minister Alistair Darling said the government would have to borrow more to fund public spending to generate growth and employment.
?This is a time when you have to support the economy,? he told the Sunday Telegraph. ?We cannot allow borrowing to rise.?
Spain was the latest country to say it would enter recession next year if the global economy suffered that fate.
Spanish Prime Minister Jose Luis Rodriguez Zapatero said the economy should return to growth by the second half of 2009, but was now either in negative quarterly growth or about to enter it.
Japan, the world?s second biggest economy that is already teetering on the brink of recession, was set to slash its economic forecasts later this month, Bank of Japan board member Atsushi Mizuno was quoted as saying.
The financial maelstrom has left no corner of the world unscathed with Iceland, Ukraine and Pakistan scrambling to secure aid from financial institutions to prop up their economies.
Iceland, pushed close to financial collapse by the bank crisis, faced more uncertainty as Russia indicated it was not yet convinced it should issue it a loan.
In Russia, Finance Minister Alexii Kudrin said investors had pulled $33 billion out of his country from August through September.