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Japan, EU launch new measures as US car talks crash
(Agencies)
Updated: 2008-12-12 22:45 Japan and Europe sought on Friday to prop up their faltering economies after a $14 billion rescue package for America's top auto makers collapsed, deepening the worst financial crisis in 80 years. The U.S. bailout's failure in late-night Senate talks will raise fears of an industry collapse that would jeopardise many jobs. The companies say one in 10 U.S. jobs are tied to the auto sector, adding up to several million. Japan's government said it would expand the size of funds set aside to recapitalise banks to 12 trillion yen ($131.1 billion) from 2 trillion yen and also announced a 1 trillion yen package to secure jobs. It was not clear how much of the money was new. Tokyo has already announced a package of economic measures worth 27 trillion yen ($295 billion), which included 5 trillion yen in new spending and featured payouts to families, tax breaks on mortgages and relief for small firms. "We are working at a very high speed. The size of the economic measures will be worked out until the last minute," Finance Minister Shoichi Nakagawa told a news conference just before the new measures were unveiled. European Union leaders backed a 200 billion euro ($264 billion) economic stimulus pact, British Prime Minister Gordon Brown said, despite German misgivings. Sceptics say the plan rests largely on national government packages already announced but leaders will be relieved after an unusually public spat with Berlin accusing London of 'tossing around billions', including a value-added tax cut. In wording which appeared to reflect the reluctance of Germany, the text noted the possibility of reducing VAT on labour-intensive services only in those states that wished to. British Foreign Secretary David Miliband said there was no rift and German domestic politics were at play. "What you have got is clearly internal politics in Germany ... you have got elections next year," he told BBC Radio. The euro zone clearly needs a boost -- data on Friday showed industrial output dived 5.3 percent year-on-year in October. "The euro zone recession is deepening," said Howard Archer, Chief European Economist at IHS Global Insight. U.S. PLAN STALLED, STOCKS DIVE The U.S Senate's refusal overnight to back a rescue plan for the auto sector can only exacerbate a crisis which has spiralled from a U.S. housing collapse through frozen money markets to bank failures and has now pushed much of the world into a recession which many experts say will be long and painful. General Motors Corp and Chrysler LLC had sought billions of dollars in immediate aid to avert collapse, while Ford Motor Co wanted a hefty line of credit. "It's going to be a very, very bad Christmas for a lot of people," said U.S. Senate Majority Leader Harry Reid, a Democrat who favoured the bailout. "I dread looking at Wall Street tomorrow. It's not going to be a pretty sight." Tokyo's Nikkei average and stocks elsewhere in Asia fell 5 percent and more after talks failed. Auto stocks went into freefall with Toyota, Nissan and others shedding over 10 percent. European shares followed suit, dropping 4.5 percent. The U.S. House of Representatives had agreed to the bailout but the Senate balked. The White House said it was weighing its options and described the failure of the talks as disappointing. GM, Ford and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at suppliers could hang on their survival. The U.S. jobless rate reached a 15-year high last month. BANK PAIN Banks, who racked up colossal losses on securities tied to risky U.S. mortgages, continue to suffer -- a fact that prevents them lending to each other and oiling global economic wheels. Bank of America plans to cut 30,000 to 35,000 jobs over three years and Britain's HBOS, due to be taken over by Lloyds TSB, said bad debts and other charges jumped by two thirds in the last two months to 8 billion pounds. JP Morgan's chief executive Jamie Dimon said on Thursday the bank has had a "terrible" November and December. Even once fast-growing China has not been able to avoid the wreckage of a crisis born of a U.S. housing market meltdown. Beijing launched a 4-trillion yuan ($586-billion) stimulus plan on November 9 and followed up on Wednesday with a pledge after a strategy meeting to ramp up public spending and cut taxes. Senior officials were confident of hitting an 8 percent growth target in 2009 -- the rate deemed necessary to create enough jobs for the millions joining the workforce each year. Others disagree. The World Bank is forecasting 7.5 percent growth next year; Goldman Sachs expects a rate of just 6.0 percent. South Korea agreed new currency swap deals with Japan and China worth the equivalent of nearly $50 billion, the latest frantic effort to stabilise its flagging economy. The deals come a day before leaders of the three east Asian countries are to hold a summit in Japan. |
