March 7, 2021

Global Finance Leaders Pledge Bold Action to Calm Markets

The shock of the downgrade Friday of long-term United States government debt and the worsening situation in Europe added new urgency to the efforts to restore confidence and prevent an extension of the stock market slide that began last week.

After conducting an emergency conference call late Sunday, the European Central Bank said it would “actively implement” its bond-buying program to address “dysfunctional market segments,” while welcoming efforts by Spain and Italy to restructure their economies and cut spending. The bank did not identify which bonds it would buy, but its statement is likely to be interpreted as a sign that it will intervene to prevent borrowing costs for the two countries from growing unsustainable.

The move was a concession that Europe’s previous efforts to stanch its debt crisis have fallen short, and underscored the importance of propping up Spain and Italy. Those two countries are central pillars of the euro zone, unlike the countries on the periphery — Portugal, Greece and Ireland — that have already received bailouts, and their collapse would threaten the euro currency and intensify the turbulence in world markets.

Shortly afterward, finance officials from the Group of 7 nations — including Treasury Secretary Timothy F. Geithner and the Federal Reserve chairman, Ben S. Bernanke — held a conference call to discuss the United States downgrade and other challenges. In a statement issued after the nearly two-hour meeting, the group said it was ready to “take all necessary measures to support financial stability and growth.”

Earlier Sunday, the Obama adminstration announced that Mr. Geithner would be staying on as secretary, a move whose timing appeared intended to reassure nervous investors.

As officials huddled to discuss strategy, traders and investors around the world also prepared for the fallout from the downgrade of the United States’ credit rating, as markets in Asia neared their opening Monday. Although many experts said the impact in the bond market would not be as stark as first feared, the ruling by Standard Poor’s on Friday has already unnerved global stock markets.

Shares across the Middle East fell sharply Sunday, with stocks in Israel falling 7 percent, the steepest daily fall in more than a decade. United States stock futures were lower, as well.

Stock markets in the Asia-Pacific region fell Monday, with the Nikkei index in Japan down 1.3 percent at midday, and the price of gold — considered a safe haven at times of uncertainty — jumped to yet another nominal record high, to more than $1,688, underscoring the lingering anxiety. Futures on the Standard Poor’s 500 were 1.8 percent lower, and the price of oil sagged $3 a barrel.

After the G-7 conference call, Yoshihiko Noda, the Japanese finance minister, told reporters that global markets’ trust in both United States Treasuries and the dollar remained “unshaken.”

With signs of slowing growth in the United States and Europe, and government budgets and central bank balance sheets already stretched to the limit, the options for policy makers are dwindling. “None of them have a lot of things to do to alleviate the crisis,” Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y., said Sunday. “Fiscal stimulus is not an option right now.”

In addition, it was not clear whether Washington would be able to break out of its partisan stalemate and produce in the next few months the kind of overarching deficit reduction that credit agencies and the markets will most likely demand.

“I just keep asking for the sake of the economy: can’t we wait on the things that we’re going to yell at each other about and start on the things that we agree on,” Austan Goolsbee, chairman of the White House Council of Economic Advisers, said on NBC’s “Meet the Press.”

In an interview with CNBC on Sunday, Mr. Geithner emphasized how critical it was for lawmakers to put aside their differences. “Congress ultimately owns the credit rating of the United States,” he said. “They have the power of the purse of the Constitution. And they’re going to have a chance now to earn back the confidence of the investors around the world.”

The country, he said, “is much stronger than Washington.”

Judy Dempsey contributed reporting from Berlin, and Liz Alderman from Paris.

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