Sharemarkets caught their breath on Saturday in the US and Europe, with the Dow finishing up 0.4 per cent and Britain's FTSE 100 climbing 0.5 per cent. However, an estimated US$1 trillion ($1.29 trillion) was wiped off US sharemarkets over the course of the week.
The New Zealand sharemarket fared better than its overseas counterparts on Friday, losing 0.9 per cent. The kiwi dollar was the bigger loser, falling US4c to US78c. At the weekend, the kiwi closed slightly lower at US77.64c.
Speaking after Friday's falls, Grant Williamson of sharebrokers Hamilton Hindin Greene expected the volatility to continue. "I don't think we'll see an improvement until decisive action is taken in Europe and America."
Yesterday the IMF's policy board said it had agreed to act decisively "to restore confidence and financial stability, and rekindle global growth".
It acknowledged that Europe is the focus of the current crisis.
"Euro-area countries will do whatever is necessary to resolve the euro-area sovereign debt crisis and ensure the financial stability of the euro-area as a whole and its member states," the board said.
IMF chief Christine Lagarde, on the firing line two months after being unexpectedly drafted from her job as French finance minister to lead the global emergency lender, insisted that the world's top financial officials were serious about facing the crisis.
"There was no denial, no finger-pointing," she said of the meeting of the IMF's powerful International Monetary and Finance Committee.
IMFC chairman Tharman Shanmugaratnam said there was not just individual resolve, but a collective resolve that "we will do what it takes to prevent an escalation of the crisis".
It was an echo of Friday's surprise statement by the G20 group of developed and industrial economies following the violent plunge in global markets. "We are taking strong actions to maintain financial stability, restore confidence and support growth," they said. All week, calls came in from government and finance leaders - including members of the G20 - for eurozone leaders to move decisively and in unison to prevent Greece from defaulting on its debt and to shore up weak banks.
New Zealand Finance Minister Bill English said from Washington on Friday that the euro crisis was of greatest concern.
"I've met one or two people who think they'll muddle through. But I've met a lot more people who are concerned that something bad might happen."
He said New Zealand was in "pretty good shape" to weather the economic storm, despite a patchy recovery so far.
The country had moved to borrow less, spend carefully, pay off debt and make the economy more competitive.
"The IMF is now telling countries that that is what they should do. In the last year or two that's what we have done - we've spent more and that has been added to by the earthquake - at the same time as setting a path back to surplus which gives a bit of credibility."
US Treasury Secretary Timothy Geithner warned yesterday that markets were moving faster than Europe's leaders, and said they were depending too much on the European central bank to handle the problem.
While there were many ideas floated on what Europe needed to do, Germany and France, as well as Lagarde, insisted that they would stick to the July 21 package of new money for Greece and a broadening of the scope of the emergency European Financial Stability Facility. But there was still clear widespread nervousness over two coming hurdles:
Whether Greece can satisfy the IMF and EU that it is implementing austerity reforms enough to earn another €8 billion handout that will allow it to avoid default, and
Whether the parliaments of the 17 members of the eurozone will ratify the July 21 pact by mid-October as targeted, to allow the new financing for Greece and for banks to get under way.
Greece wants to stay in the eurozone, and the other members want it to stay, German Finance Minister Wolfgang Schaeuble said.
"If the necessary measures [by Greece] will be taken, we'll do everything to make that happen."
- Staff reporters, agencies
GUIDE TO THE ECONOMIC FLASHPOINTS
Europe
European policymakers have failed to convince financial markets that they can resolve a massive debt crisis. Investors fear that Greece and other countries will be unable to pay their debts and will default, forcing banks to absorb big losses on government bonds.
Greece, Ireland and Portugal have already required bailouts from the European Union and the IMF. Italy and Spain, which are much bigger economies, might need them, too.
A US$149 billion ($191 billion) bailout has kept Greece afloat for the past year. It is due for another US$148 billion rescue negotiated over the northern summer. But creditors are baulking at delivering the second package. They say Greece has fallen behind on commitments to cut government deficits and make its economy more competitive.
United States
US markets sank last week even though the Federal Reserve offered a bigger dose of economic stimulus than investors expected.
The Fed plans to reshuffle US$400 billion of its investments in the hope of pushing down interest rates on mortgages and other long-term loans.
Lower rates are supposed to coax consumers and businesses into borrowing and spending. The Fed also plans to invest proceeds from maturing US Treasury debt into mortgage bonds to support the housing market.
But economists say the Fed's effort, dubbed Operation Twist after a similar Fed programme conducted during the Chubby Checker dance craze of the early 1960s, will probably not make much difference.
Rates on mortgages and other loans are already the lowest in decades. Frightened Americans would rather cut their debts than borrow, and businesses are not seeing enough sales to justify hiring and expanding despite rock-bottom borrowing costs.
China
The powerful Chinese economy is supposed to account for a third of global growth this year. Increasingly, other countries - including New Zealand - depend on China's insatiable demand for raw materials and machinery to give their own economies a lift. So any signs the Chinese economy might be slowing are sure to frazzle investors. And a report last week showing that Chinese manufacturing is contracting sent financial markets into a tailspin.
Analysts say investors over-reacted to one limited report.
The IMF has lopped just a tenth of a percentage point off its estimate for Chinese economic growth this year, bringing it to a still-sizzling 9.5 per cent. Yet despite China's rising power, experts say its economy is still not big or strong enough to compensate for meltdowns elsewhere: Chinese investment and spending is only one-sixth that of the European Union and the United States.
To make up for a 3 percentage point drop in growth in those economies, China would have to grow by 18 per cent this year, said Deutsche Bank economist Ma Jun in a report. "This is mission impossible."
- AP
