Key Central Banks Act to Support Global Financial System; Stocks Surge

Posted November 30th, 2011 at 2:00 pm (UTC-5)
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The world’s major central banks took coordinated action Wednesday to support the global financial system, sending stock markets soaring.

The U.S. Federal Reserve, the European Central Bank, the Bank of England and the central banks in Japan, Canada and Switzerland said that starting next Monday they are making it a half percentage point cheaper for banks to borrow U.S. dollars. The move was aimed at increasing the flow of capital for European banks caught in the midst of the continent’s governmental debt crisis and also at boosting economic activity throughout the world.

Stocks surged 3 percent or more at major exchanges in New York, London, Paris and Frankfurt. Analysts welcomed the central banks’ action but questioned the length of its effect.

The head of Energy Europe, Mark Thomas, called it “supportive,” but added that it was “difficult to predict for how long.”

Resolution of the European debt crisis remained elusive. European Union finance ministers meeting in Brussels failed to produce a plan to support the euro, the currency used by 17 nations, and left further action for a summit of European leaders set for late next week.

European economic leader Olli Rehn said the next days are crucial in deciding how to end the crisis, as well as the need for further international bailouts for debt-ridden countries.

The central banks said the move to shore up the global financial system was aimed at easing access to credit for households and businesses to “foster economic activity” to avert a new recession.

World financial markets have been roiled for weeks — with sharp swings in stock values, up and down — as investors worry about the survival of the euro currency and the continent’s two-year-old debt crisis.

European leaders are discussing whether to require eurozone nations to cede control of their finances to a central authority to oversee spending and impose austerity measures. Until now, such a proposal has proved to be an anathema for European countries intent on controlling their own affairs and national identity.

A stock trader at Baader Bank in Frankfurt, Robert Halver, said the central banks need to be directly involved in solving the debt crisis.

Greece, Ireland and Portugal have all needed to secure international bailouts in the last year and a half. Now, European leaders are worried about the financial stability of Italy, which has Europe’s third largest economy and also debts totaling $2.6 trillion.

Swedish Finance Minister Anders Borg said the new Italian government needs to quickly impose new austerity measures to assure financial markets it is intent on controlling its debt.