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Wednesday, 12 September, 2001, 19:11 GMT 20:11 UK
Action to contain market crisis
G-7 finance ministers and central bankers in Genoa
Governments and central bankers hope to act in concert
Governments, central banks and economic authorities around the world have pledged to seek ways to help stabilise the global financial system in the wake of the US attacks.

The US Federal Reserve
The US Fed is functioning as normal
"We are committed to ensuring that this tragedy will not be compounded to disruption to the global economy," the G7 group of industrial nations said in a statement.

"I have been in touch with a number of key monetary authorities around the world, and they are taking action to ensure the orderly functioning of financial markets," said the managing director of the International Monetary Fund, Horst Koehler.

The Fund "stands ready to assist its member countries as appropriate", he added.

The commitment "demonstrates we are alert and that we are answering very short term panicky reactions in, I believe, an adequate way", said Wim Duisenberg, president of the European Central Bank.

Systemic risks

As share, currency and commodity markets are gyrating, there are fears of a prolonged period of chaotic trading.

And in the longer term, efforts focus on persuading the banking system to continue lending as normal.

If bank lending were to dry up, it could push the already vulnerable global economy into recession.

But with the likely economic consequences of the attacks still far from clear, there is little consensus over the form and scale of necessary intervention.

Fed funds

Central bankers have led the way, stressing that global financial mechanisms were operating as usual, despite disruptions to some US-based markets.

Fed chairman Alan Greenspan
Mr Greenspan is trying to fly home

The chairman of the US Federal Reserve, Alan Greenspan, a key figure in inspiring confidence in financial markets, hitched a lift on a military plane to ensure he was back at his desk on Wednesday, after attending a meeting in Switzerland.

The Federal Reserve has said it will be providing cash to the banking system, in order to keep loans flowing.

The Fed was quickly followed by similar promises from the central banks of Japan and Switzerland.

Later on Tuesday, there were similar assurances of support from Australia, South Korea, Singapore and Thailand.

Europe follows suit

In the European morning, the global aid bandwagon gathered pace.

Mr Duisenberg told the European parliament on Wednesday that cheaper funds would be provided to the banking sector, under a 24-hour emergency facility that will be reviewed as events unfold.

ECB president Wim Duisenberg
Mr Duisenberg has already provided bank funds

By mid-morning on Wednesday, the ECB had already provided more than 69bn euros (42.7bn; $63bn) through the facility.

The Bank of England followed suit, and confirmed that the Fed had asked it and other central banks to "minimise trading in dollars".

It is usual for central banks to put funds at the disposal of the banking sector, especially in cases of emergency or financial panic.

A similar move by the Fed in 1987 was largely credited with the rapid recovery from the "Black Monday" market crash of that year.

Longer-term thinking

The question now facing policymakers is what measures will be needed in the longer term.

There is already talk of intervention in the foreign exchange markets, in order to prevent damaging volatility in the value of the dollar.

Japanese finance minister Masajuro Shiokawa
Mr Shiokawa says Japan may also intervene

The US currency fell more than 2% against most world currencies late on Tuesday, suffering particularly in relation to the Swiss franc - a traditional safe haven for investors.

Mr Duisenberg said that he was offering to intervene, echoing an earlier pledge from Japanese finance minister Masajuro Shiokawa.

Although central banks commonly intervene in the currency markets, concerted intervention is relatively rare, and usually reserved for times of crisis.

A global intervention last took place last year, when the euro was falling particularly sharply, and US exporters were suffering from the strong dollar.

Rate-cut rumours

Less clear is whether one-off currency intervention will be mirrored by moves in monetary policy.

If the US economy is pushed towards recession, there will be calls for drastic cuts in interest rates - possibly around the world - in order to provide a stimulus to economic activity.

Mr Duisenberg, always cautious about rate changes, said that there was no need to cut rates in the present circumstances.

But Bank of England governor Sir Edward George told the BBC that the bank was the bank was "clearly ready to move" on interest rates if necessary.

And the foreign exchange markets have already been hit by rumours of an unscheduled Fed rate cut, possibly when Mr Greenspan arrives back in the US.

In 1987, central banks around the world cut their rates in concert.

Governments join in

The central banks' offers have been echoed by governments around the world.

German finance minister Hans Eichel
Germany's Mr Eichel has pledged his support

European finance ministers were already in talks on maintaining financial stability, according to Swedish finance minister Bosse Ringholm.

German finance minister Hans Eichel promised to "ensure that the orderly functioning of national and international markets remains".

British prime minister Tony Blair held 75 minutes of crisis talks with his cabinet on Wednesday morning.

And in France, finance minister Laurent Fabius called emergency talks with top level staff to weigh up the economic and industrial impact.

Late on Wednesday, finance ministers and central bankers from the G7 group of industrialised nations announced that they would "monitor economic developments and financial markets closely and stand ready to take further action as necessary".

No co-ordination

But there is so far little co-ordination between unilateral offers of support.

In the past, market intervention and other confidence-boosting measures have only tended to work when they are in concert.

This time, the attacks have already disrupted the mechanisms under which such co-operation is usually arranged.

A formal meeting of the G7, scheduled for the end of this month, now seems likely to be postponed.

It was the G7 that co-ordinated last year's intervention to support the euro.

The annual meetings of the International Monetary Fund and World Bank, timed to coincide with the G7, will also probably be rescheduled.

The Bank for International Settlements, the organisation that co-ordinates central banks around the world, said that a meeting of central bank governors in the immediate future could prove impracticable.

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ECB's Wim Duisenberg
"The ECB...is standing ready to support the normal functioning of markets"
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