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13 Oct, 2008 02:29

G7 members act to head off global financial meltdown

Finance leaders met over the weekend to deal with the ongoing crisis engulfing the global financial system. EU countries said they will take big stakes in banks and guarantee lending between banks for up to 5 years.

While governments are working out how much they will spend to put their plans into play, economists are braced for what effects the crisis will have in the months to come.

A partnership pledge  -  it's what financial leaders from around the globe are calling their economic recovery plan.  On Saturday, the G7 members – Japan, Germany, Britain, France, Italy, Canada, and the U.S.  – met in Washington to once again voice their commitment to restore order and liquidity. U.S. President, George W. Bush called on the major economies to coordinate their actions.

“As our nations carry out this plan, we must ensure the actions of one country do not contradict  or undermine the actions of another. In our interconnected world no nation will gain by driving  down the fortunes of another. We're in this together and we'll come through it together. I'm  confident that the world's major economies can overcome the challenges that we face.”

The agreement is short on details – exact figures have not been released. On Sunday, Euro-zone chiefs met in Paris to find a common response to the crisis from their end.

They signed a draft declaration that said their governments would temporarily guarantee future bank debt to encourage lending and ease credit markets. German Chancellor, Angela Merkel, was also emphasizing the need for coordination of individual national responses.

“Our goal is to define a coordinated joint plan of action for the euro-zone, so that we can in the coming days take national measures that will stabilise the financial markets, but don't discredit the individual member states, so that we can move together and, in doing that, create fair conditions for everybody.”

There's been public concern in many countries as to how people will be affected by the crisis – with leaders doing their best to calm them. But economists say that the average person will feel the bite of the crunch.

Few Russians have invested in equities, but the effects on banking and other sectors are expected to trickle down to those where consumers have interests, and that could change the way money is used. Evgeny Nadorshin, Chief Economist at trust Bank, says he is expecting an increase in spending over the longer term, after a possible decrease in the immediate future.

“Loans are becoming less available and they are becoming more expensive.  So it should definitely result in the increased spending, at least I expect the Russian population to increase spending. Probably not in the very short term, within the next couple of months we may even see a decrease in spending, but then the adaptation should take place.”   

Economists and world leaders will be on tenterhooks over the next few months – as the world awaits the full impact of this autumn's market falls.