More calls for action as recession fears spread

Britain and the EU called for strong joint action to hold off the recession threatening leading economies as more grim economic and corporate news battered world stock markets on Tuesday.

In Washington meanwhile, the World Bank announced a 100-billion-dollar increase in aid for developing countries just three days before a crucial economic summit, and the US government launched a sweeping program to ease mortgage terms for hundreds of thousands of struggling homeowners.

British Prime Minister Gordon Brown called for a coordinated global "fiscal stimulus" amid reports that his government would soon announce tax cuts to boost the economy, which is on the verge of recession.

"If we have a fiscal stimulus in Britain and it is not repeated in other countries, then it will have far less effect and far less benefit than if it were done in every other major economy around the world," Brown said.

In Brussels, EU Economic Affairs head Joaquin Almunia also called for joint action. "If the EU, and in particular the euro area, is not coordinating the different actions, all the euro area countries will lose," he said.

A lack of coordination would mean "the effects of these measures will be smaller, the efficiency will be lower and the possible results will take longer."

Those calls came as five German government economic advisors forecast that the biggest European economy will not grow at all in 2009, and UniCredit Bank estimated German gross domestic product will decline by 0.7 percent.

In reaction the euro plunged against the dollar as investors sought refuge in the US unit, traders said.

In late trading in London, the euro fell to 1.2555 dollars from 1.2748 dollars late in New York on Monday, after slumping almost three cents earlier to as low as 1.2518 dollars.

The World Bank moved to protect less developed economies from the impact of the global downturn, saying Tuesday it would nearly triple its lending and deliver an extra 100 billion dollars to developing countries over the next three years.

The increase is aimed in part at offsetting a decline in private capital flows to developing countries that could further shrink as the financial crisis escalates.

World Bank President Robert Zoellick said that even countries with good economic management were feeling threatened by the global downturn and asking the development lender for help.

He cited "countries that had very sound macroeconomic programs like Mexico, Indonesia, and that are in a position where they are not at financial risk, but they are worried about their ability to get financing to maintain budgets."

Zoellick was in Sao Paolo for an international meeting of finance officials ahead of the G20 emergency summit of economic leaders in Washington Friday.

The officials in Brazil sought to broaden the club of global economic leadership to include more emerging economies, and on Tuesday Mexico's President Felipe Calderon said his country would seek a revision of financial control mechanisms and clearer regulations at the November 15 summit.

Meanwhile the International Monetary Fund said it was waiting for a loan for crisis-hit Iceland to be "fully financed" before it can be submitted to the IMF executive board, more than two weeks after announcing an emergency loan agreement with the Icelandic government.

In Washington the housing industry and its financial investors saw a ray of light with the announcement of a concerted push to adjust hundreds of thousands if not millions of home loans in danger of default.

The Federal Housing Finance Agency, which temporarily took over struggling mortgage giants Fannie Mae and Freddie Mac in September, said the program to slash interest rates, lengthen loan periods and possibly reduce principle brings together borrowers, loan owners and investors, loans servicers and other parties in a streamlined workout format that will benefit all.

"Foreclosures increased 150 percent over the last two years. Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral," FHFA head James Lockhart said.

Hours earlier Citigroup announced its own program to work out mortgages , including a moratorium on foreclosures and preemptive talks with half a million at-risk mortgage customers.

But the news remained grim for the three US auto giants General Motors, Ford and Chrysler.

A day after Deutsche Bank analysts forecast GM's share price would fall to a value of zero, outgoing President George W. Bush and President-elect Barack Obama, who will take office January 20, appeared already at odds on a rescue for the industry, with Bush appearing resistant to Obama's pressure for more help for the Big Three.

After dropping 23 percent on Monday, GM shares fell another 11 percent Tuesday to 2.99 dollars, a 65-year low.

AFP

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