France says world on ‘edge of the abyss’
PARIS/LONDON, October 3 - French prime minister Francois Fillon said on Friday the world stood on the ”edge of the abyss”, gripped by a global financial crisis now threatening industry, trade and jobs worldwide.
Fillon’s words echoed a growing sense of alarm sweeping EU capitals ahead of an expected U.S. Congressional vote on Friday on a $700 billion bailout plan for the financial industry. Approval is far from certain.
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The House of Representatives shocked world markets on Monday by rejecting a previous draft, wary of popular anger over the housing market collapse that triggered the crisis and high risk financial ventures that collapsed under the burden.
Prime minister Fillon, whose country is hosting an emergency summit of Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing.
”The world is on the edge of the abyss because of an irresponsible system,” Fillon said, alluding to widespread anger over past lax regulation of financial markets and excessive lending.
Fillon said president Nicolas Sarkozy would propose at the emergency meeting measures to unfreeze credit and coordinate economic and monetary strategies.
European Central Bank President Jean-Claude Trichet sounded an alarm on Friday’s expected vote in the U.S. Congress.
”(U.S. Treasury) Secretary (Henry) Paulson’s plan obviously must be passed,” he told Europe 1 Radio. ”It must be. It is necessary.”
Bad news mounted in the European financial sector.
In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime-related holdings, said it would cut 2,000 investment banking jobs -- on top of the 4,100 positions cut in the past year.
Worries grew that even if Washington agrees on the package, it will not be enough to resolve deeper-rooted weakness. New data showed that a US recession is nearing and Europe’s economy is worsening.
”Investors expect the U.S. House to approve the bailout, but even if that happens, it would have a neutral impact on the market as its effectiveness is still questionable,” said Takahito Murai, general manager of equities at Nozomi Securities in Tokyo.
A collapse in the US housing market and resulting ”bad mortgages” has undermined confidence in the financial sector, with inter-bank lending and credit to businesses and private individuals all but seizing up.
Central Banks have injected billions of dollars to maintain some flow of funds.
Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks, and Greece promising to safeguard savers’ cash.
EU partners said Ireland’s move could break competition rules and threatened the unity necessary to ensure an ordered approach to turmoil ahead.
US payrolls data due to be released at 1230 GMT were forecast to show that businesses cut jobs for the ninth straight month in September, with 100,000 non-farm jobs expected to be lost, against a drop of 84,000 in August, according to the median in a Reuters poll of economists.
World stocks fell to a fresh three-year low on concerns the bailout would not be enough to prevent the U.S. economy and that of the rest of the world slowing further.
”Paralysis is spreading across the asset markets despite the various attempts by authorities across the globe to shore up confidence,” the Calyon brokerage said in a not to clients.
House Speaker Nancy Pelosi said the bailout package would not be brought to the floor without the votes secured to pass it.
New economic data painted a bleak picture. U.S. factory orders tumbled in August and the number of workers seeking jobless benefits rose in the latest week to a seven-year high.
Oil rose above $94, supported by expectations that the House would approve the plan, which would then be passed into law by President George W. Bush.
Wall Street endured a dismal day on Thursday, as stocks dropped 4 percent and a seizing up in money markets drove a rally in the dollar.
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