By Steven K. Beckner

(MNI) – Fearing turbulent financial market activity as trading
resumes around the world, the top economic policymakers of the Group of
Seven industrial nations pledged to work together Sunday evening.

Following an emergency meeting, Treasury Secretary Timothy Geithner
and Federal Reserve Chairman Ben Bernanke and their G7 counterparts
pledged to “take all neccessary measures” to support financial stability
and economic growth.

In a joint statement, the finance ministers and central bankers
proclaimed their committment to addressing the budget deficits and
mounting debt which led to a downgrade of U.S. debt Friday night and
which are also threatening to undermine the European currency system.

The G7 committed to “taking coordinated action where needed, to
ensuring liquidty and to supporting financial market functioning,
financial stability and economic growth.”

They also vowed to stay “in close contact” in coming weeks and
“cooperate as appropriate” to stabilize foreign exchange and other
markets.

While pledging to work together to calm market fears about their
soaring debts, the G7 officials imply that they have already
taken ample steps to curb their deficit spending — a contention with
which S&P and many others obviously disagree.

For instance, the statement maintains that the nominally $2.4
trillion U.S. debt deal inked by President Obama last Tuesday “will
deliver substantial deficit reduction.” It also defends the Euro
area’s “comprehensive package to tackle the situation in Greece and
other countries” on July 21.

The G7 declaration, which was followed by a statement from
International Monetary Fund Managing Director Christine Lagarde, came on
the heels of a dramatic announcement by the European Central Bank.

With Europe already reeling from the Greek debt crisis, the ECB is
not taking any chances. Following an emergency meeting of its divided
Governing Council Sunday, the ECB let it be known Sunday afternoon that
it will wade into continental bond markets and buy the debt of Italy and
Spain — two larger debtor nations whose financial woes could cause
severe repercussions for banks in Europe and beyond.

The immediate trigger for these frantic discussions and actions was
an unprecedented downgrade of U.S. government debt, which in turn
followed the enactment of a debt reduction deal that was widely greeted
with disappointment, if not scorn.

Deeming the debt deal insufficient, premier rating agency Standard
& Poor’s announced Friday night that it was lowering its rating of U.S.
government and agency debt from triple-A to double A-plus. What’s more,
it called the outlook for U.S. debt “negative” and warned of “a possible
further downgrade” if additional steps to reduce deficit spending by the
federal government are not taken.

Even before the announcement, stock prices had plunged in the U.S.
and other countries. Despite Friday morning’s better than expected July
employment report, the stock market closed mixed Friday.

The three major stock indices are all down from 10% to 12% from
their 2011 highs, and early indications are that selling will resume on
Wall Street Monday morning. Overseas markets have already turned lower.

In dread anticipation of intensified turmoil that could drag the
globe back into financial crisis and recession, the G7 convened a 5:30
p.m. conference call. Shortly before 8 p.m. they issued the following
terse six-paragraph statement, whose effectiveness remains to be seen.

Much of it echoes the kinds of joint proclamations made in past
crises:

“In the face of renewed strains on financial markets, we, the
Finance Ministers and Central Bank Governors of the G7, affirm our
commitment to take all necessary measures to support financial stability
and growth in a spirit of close cooperation and confidence.

“We are committed to addressing the tensions stemming from the
current challenges on our fiscal deficits, debt and growth, and welcome
the decisive actions taken in the US and Europe. The U.S. has adopted
reforms that will deliver substantial deficit reduction over the medium
term. In Europe, the euro area Summit decided on July 21 a comprehensive
package to tackle the situation in Greece and other countries facing
financial tensions, notably through the flexibilisation of the EFSF. We
are now focused on the quick and full implementation of the agreements
achieved. We welcome the statement of France and Germany to that effect.
We also welcome the statement of the Governing Council of the ECB.

“We are committed to taking coordinated action where needed, to
ensuring liquidity, and to supporting financial market functioning,
financial stability and economic growth.

“These actions, together with continuing fiscal discipline efforts
will enable long-term fiscal sustainability. No change in fundamentals
warrants the recent financial tensions faced by Spain and Italy. We
welcome the additional policy measures announced by Italy and Spain to
strengthen fiscal discipline and underpin the recovery in economic
activity and job creation. The Euro Area Leaders have stated clearly
that the involvement of the private sector in Greece is an extraordinary
measure due to unique circumstances that will not be applied to any
other member states of the euro area.

“We reaffirmed our shared interest in a strong and stable
international financial system, and our support for market-determined
exchange rates. Excess volatility and disorderly movements in exchange
rates have adverse implications for economic and financial stability. We
will consult closely in regard to actions in exchange markets and will
cooperate as appropriate.

“We will remain in close contact throughout the coming weeks and
cooperate as appropriate, ready to take action to ensure stability and
liquidity in financial markets.”

Lagarde later welcomed the ECB and G7 statements and “their
renewed commitment to take all necessary action in a coordinated way to
ensure stability and liquidity in the financial markets.”

“This cooperation will contribute to maintaining confidence and
spurring global economic growth,” she asserted.

“The swift implementation of the commitments by the Euro Area
Governments on July 21, 2011, and the recent agreement to reduce the
United States’ fiscal deficit in the medium term, without undermining
growth, are further critical elements for financial stability,” Lagarde
added.

** Market News International **

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