The world is facing a crisis of confidence, the finance ministers of Britain and four other countries warned Monday, calling for a global response to reassure jittery markets and support a sustainable recovery.
"The world faces a crisis of confidence," British Chancellor of the Exchequer George Osborne said in a joint statement with Australia's Wayne Swan, Canada's Jim Flaherty, Singapore's Tharman Shanmugaratnam and South Africa's Pravin Gordhan.
"A new global response is therefore needed to support a sustainable recovery," the ministers said.
Trillions of dollars in value have been wiped off stock markets in a massive sell-off over the past couple of weeks as investors dumped shares over concerns of a global slowdown, eurozone debt, and the US credit rating downgrade.
The ministers warned of a lack of confidence in efforts by governments to address the issues underpinning weak growth, high unemployment and unsustainable fiscal balance sheets.
"More short-term fixes without serious medium term commitments will only weaken confidence further," they cautioned.
"Getting public finances back onto a sustainable trajectory is central," they said. "Hard decisions on spending, entitlements and taxes in countries with large budget deficits are unavoidable."
The ministers said the United States plays an especially important role in restoring confidence.
Earlier this month, Standard & Poor's cut the United States' credit rating for the first time in history, from its top-flight triple-A one notch to AA+, saying US politicians were increasingly unable to handle the country's huge fiscal deficit and debt load.
A 10-year US deficit reduction deal of $917 billion with another $1.5 trillion in cuts to be decided by the end of the year fell far short of the $4 trillion in cuts and tax hikes that S&P had said would merit retaining the AAA rating.
"Credible fiscal commitments are in its own interests and the world?s," noted Osborne and the other ministers.
The eurozone also needs to "take decisive steps to reassure markets" and "demonstrate commitment to greater fiscal integration and governance arrangements that avoid moral hazard and entrench fiscal responsibility" they said.
Surplus countries and leading emerging economies must also make their contribution to ensuring recovery and rebalancing of the global economy by pushing forward with reforms that support domestic consumption and demand, they said.
Coordinated action the Group of 20 leading economies helped mitigate the effects of the 2008 global financial crisis, but their efforts on rebalancing the world's economy have since stalled.
The G20 nations need to "move from discussion to action" on the global economy in the coming months, said Osborne and his colleagues.
Their statement follows comments at the weekend by World Bank chief Robert Zoellick who said that investors had lost confidence in the economic leadership of several key countries and that global markets were consequently in a "new danger zone".
Zoellick said a convergence of events in the United States and Europe had rattled investors in countries already struggling to cap sovereign debt issues and unemployment.
"And what we've seen is that confidence is a fragile element of how the market economy works," he said.
Source: AFP Global Edition