الرئيسية
The Euro sculpture is reflected in a puddle on the lid
of a bin that stands in the Frankfurt Occupy camp at the European
Central Bank in Frankfurt, Germany, Wednesday, Nov.30, 2011.(AP
Photo/Michael Probst)
By DAVID McHUGH and PAUL WISEMAN, AP
FRANKFURT, Germany (AP) — The central banks of the wealthiest
countries, trying to prevent a debt crisis in Europe from exploding
into a global panic, swept in Wednesday to shore up the world financial
system by making it easier for banks to borrow American dollars.
Stock
markets around the world roared their approval. The Dow Jones
industrial average rose almost 500 points, its best day in two and a
half years. Stocks climbed 5 percent in Germany and more than 4 percent
in France.
Central banks will make it cheaper for commercial
banks in their countries to borrow dollars, the dominant currency of
trade. It was the most extraordinary coordinated effort by the central
banks since they cut interest rates together in October 2008, at the
depths of the financial crisis.
But while it should ease
borrowing for banks, it does little to solve the underlying problem of
mountains of government debt in Europe, leaving markets still waiting
for a permanent fix. European leaders gather next week for a summit on
the debt crisis.
The European Central Bank, which has been
reluctant to intervene to stop the growing crisis on its own continent,
was joined in the decision by the Federal Reserve, the Bank of England
and the central banks of Canada, Japan and Switzerland.
"The
purpose of these actions is to ease strains in financial markets and
thereby mitigate the effects of such strains on the supply of credit to
households and businesses and so help foster economic activity," the
central banks said in a joint statement.
China, which has the
largest economy in the world after the European Union and the United
States, reduced the amount of money its banks are required to hold in
reserve, another attempt to free up cash for lending.
The display
of worldwide coordination was meant to restore confidence in the global
financial system and to demonstrate that central banks will do what
they can to prevent a repeat of 2008.
That fall, fear gripped the
financial system after the collapse of Lehman Brothers, a storied
American investment house. Banks around the world severely restricted
lending to each other. The global credit freeze panicked investors and
triggered a crash in stock markets.
In October 2008, the ECB, the
Fed and other central banks cut interest rates together. That action,
like Wednesday's, was a signal from the central banks to the financial
markets that they would be players, not spectators.
This year,
investors have been nervously watching Europe to see whether they should
take the same approach and dump stocks. World stock markets have been
unusually volatile since summer.
The European crisis, which six
months ago seemed focused on the relatively small economy of Greece, now
threatens the existence of the euro, the common currency used by 17
countries in Europe.
There have also been signs, particularly in
Europe, that it is becoming more difficult to borrow money, especially
as U.S. money market funds lend less money to banks in the euro nations
because of perceived risk from the debt crisis.
European banks
cut business loans by 16 percent in the third quarter. And no one knows
how much European banks will lose on their massive holdings of bonds of
heavily indebted countries. Until the damage is clear, banks are
reluctant to lend.
Banks are also being pressed by European
governments to increase their buffers against possible losses. That
helps stabilize the banking system but reduces the amount of money
available to lend to businesses.
"European banks are having
trouble borrowing in general, including in dollars," said Joseph Gagnon,
a former Fed official and a senior fellow at the Peterson Institute for
International Economics. "The Fed did the Europeans a favor."
Foreign
central banks are reducing by half a percentage point, to about 0.6
percent, the rate they charge commercial banks for dollar loans.
Commercial banks need dollars because it is the No. 1 currency for
international trade. The lower rate is designed to get credit flowing
again.
To get the dollars to lend, central banks go to the Fed
and exchange their currency for dollars under a special swap program.
Foreign central banks pay the Fed whatever interest they earn from
commercial banks.
The Fed had offered dollar swaps from December
2007, when world financial markets were weakening because of fear about
subprime mortgages, until February 2010. It reopened the program in May
2010, as European debt concerns grew, and planned to end it Aug. 1,
2012. On Wednesday, the Fed extended the program to Feb. 1, 2013.
If it all works, the market rates on dollar loans will drop, and stock and bond markets will calm down.
"It
shows that policymakers are on the case," said Roberto Perli, managing
director at the International Strategy & Investment Group, an
investment firm. He said it has symbolic value even if it does not have a
big impact on credit markets.
The decision to cut the interest
charged on the dollar swaps was taken by the Federal Reserve following a
videoconference held by Fed officials on Monday morning. The Fed's
policy-setting panel approved it 9-1. The president of the Fed's
regional bank in Richmond, Va., voted no.
In New York, the stock
market jumped at the opening bell and added to its gains throughout the
day. It finished up 490.05 points, its seventh-largest one-day gain and
its best since March 23, 2009, two weeks after the stock market's
post-meltdown low.
Wednesday's advance also swung the Dow from a
loss for the year to a gain. It closed at 12,045.68, its first close
above 12,000 since Nov. 15.
Stocks closed 5 percent higher in
Germany, 4.2 percent in France and 3.2 percent in Britain. European
stocks had posted big gains earlier this week because investors saw hope
that countries would settle on an attempted fix for the European debt
crisis.
Stock markets in Asia, which closed before the central
banks announced their move, finished lower for the day. The statement
came out at 8 a.m., in the middle of the European trading day and an
hour and a half before the market opened in New York.
Borrowing
costs for countries across Europe fell, an encouraging sign. The yield
on benchmark 10-year national bonds dropped 0.32 percentage points in
Belgium. It also fell in Spain, France and Germany.
The yield on
10-year Italian bonds fell 0.08 points to 7.01 percent. The 7 percent
level is significant because it is considered the point at which a
country's borrowing costs become unsustainable. Yields above that level
forced Ireland, Portugal and Greece to seek bailouts.
In the
U.S., the yield on the 10-year Treasury rose to 2.08 percent from 2
percent late Tuesday. That showed investors were willing to take money
out of assets considered super-safe, such as U.S. government debt, and
invest it in riskier assets like stocks.
It is also a sign of
increased confidence in the U.S. economy, which is beginning to pick up
after it faltered in the spring and summer. It grew at an annual rate of
2 percent in July, August and September, the strongest since late last
year.
It will take more than that to bring down unemployment in
the U.S., which has been stuck at about 9 percent for more than two
years, but the U.S. has added jobs for 13 months in a row. The
government's next read on unemployment comes out Friday.
In
Europe, countries like Ireland, Portugal, Spain, Greece and Italy
overspent for years and racked up annual budget deficits that have left
them with backbreaking debt. Italy alone owes €1.9 trillion, or 120
percent of what its economy produces in a year.
The ECB extends
unlimited short-term loans to banks. It cannot lend directly to
governments, including by buying their national bonds. It can, however,
buy national bonds on the secondary market, lowering borrowing costs for
governments.
The ECB has resisted expanding even this indirect
support because it believes that would take the pressure off politicians
to cut spending and reform government finances, a concern known as
moral hazard.
European leaders are considering other options,
including creating a fiscal union — giving a central authority control
over the budgets of sovereign nations. That would ease the ECB's
concerns.
The ECB has also worried that injecting too much money into the European economy would trigger inflation.
The
coordinated action was a demonstration of how interconnected the world
financial system is, and that the debt loads of countries like Italy and
Greece are everyone else's problem, too.
Germany's economy
depends heavily on exports, and if economic output in the rest of Europe
collapses, the people of smaller countries couldn't buy as many German
goods.
Across the Atlantic Ocean, the United States depends on
Europe for 20 percent of its own exports. And investors in American
banks have worried about their holdings of European debt.
Standard
& Poor's, the credit rating agency, lowered its rating at least one
notch Tuesday for the four largest banks in the U.S. — Bank of America,
Citigroup, JPMorgan Chase and Wells Fargo.
China, one of the
only places in the world where the economy is growing quickly, needs the
U.S. and Europe both to stay healthy. Growth in Chinese exports has
declined from 36 percent in March compared with the year before to 16
percent in October.
China will reduce the amount of money that
its commercial lenders must hold in reserve by 0.5 percentage points of
their deposits. It was the first easing of Chinese monetary policy in
three years.
___
Wiseman reported from Washington. AP Economics Writer Martin Crutsinger contributed from Washington.