WORLD leaders clinched a $1.1 trillion (€820 billion) deal to combat the worst economic crisis since the Great Depression and said financial rules would be tightened to stop it happening again.
US President Barack Obama declared it a “turning point” for the world economy, even though he had won no promises for more government spending to combat a deepening world recession.
“By any measure, the London summit was historic,” he told a post-summit press conference.
“It was historic because of the size and the scope of the challenge that we face and because of the timeliness and the magnitude of our response.”
French President Nicolas Sarkozy celebrated the waning of the Anglo-Saxon model of lightly regulated capitalism, which many blame for excess that has triggered the crisis.
World stocks rallied on bold action that will help finance emerging markets, though economists cautioned against euphoria.
“We have agreed on a series of unprecedented steps to restore growth and prevent a crisis like this from happening again,” Mr Obama told a news conference. “We’ve also rejected the protectionism that could deepen this crisis.”
G20 leaders from the largest developed and emerging economies ticked off a raft of actions on politically sensitive topics — new rules on bonuses, publishing a blacklist of tax havens that could lead to sanctions and imposing oversight on large hedge funds and on credit rating agencies. The tax havens marked a victory for France and Germany.
Markets, desperate for good news when the global economy is shrinking for the first time since World War Two, reacted positively to the $1.1tn deal that boosts financing through the International Monetary Fund and for trade. Much will be directed to emerging markets increasingly sucked into the global turmoil.
In addition, British Prime Minister Gordon Brown, the summit host, said governments already have pledged $5tn of public stimulus by the end of next year, even before taking into account their commitments to do whatever may be needed coming from the summit.
Missing from the deal were specifics on the financial rules, how banks would unload their toxic assets, let alone any clarity on the actual size of stimulus already in the pipeline.
By day’s end the index of top European shares was up 4.9%. On Wall Street, the Standard and Poor’s index was up 3.73%.
The new funds, available through the International Monetary Fund and other institutions, included $250bn of IMF reserve units. The IMF would also see its own resources tripled, with up to $500bn of funds, of which $40bn would come from China — a significant step for the world’s third-largest economy.
Much of it is likely to go to poorer countries, notably in eastern Europe.
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