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EU presses for reforms, recession signs mount (Reuters)

By Eddie Evans and Paul Taylor 3 minutes ago

NEW YORK/BRUSSELS (Reuters) - European leaders pressed on Wednesday for an overhaul of global financial structures, as signs of global recession mounted.

The United States reported its biggest monthly decline in retail sales in more than three years in September, sending stock index futures lower before Wall Street markets opened.

EU leaders called for reforms as they arrived in Brussels for a meeting, after committing 2.2 trillion euros ($3 trillion) this week to rescue European banks and break a logjam in money markets that has choked off lending, in the worst financial crisis since the Great Depression.

The U.S. government followed with similarly radical action to stem the crisis, which began with a U.S. housing market collapse and now threatens economies worldwide.

"The IMF has got to be rebuilt as 'fit for purpose' for the modern world. We need an early warning system for the global economy," British Prime Minister Gordon Brown told reporters in Brussels.

German Chancellor Angela Merkel also told her parliament that new international financial rules were needed with the International Monetary Fund taking on a bigger supervisory role.

The United States put its shoulder to the wheel on Tuesday by offering to take up to $250 billion worth of stakes in its banks, an astonishing move in the home of free market capitalism, suggesting an appetite for new regulation even there.

U.S. bank JPMorgan Chase's third-quarter profit plunged 84 percent.

RECESSION THREAT

Even if a banking sector collapse has been averted, a recession has not, a fact markets seized upon.

European shares shed 3 percent. Oil fell more than $2 a barrel.

Coca-Cola reported an above-forecast quarterly profit as strong international demand offset falling volume at home.

Iceland, driven close to bankruptcy as frozen credit markets caused its banks to fail, cut interest rates by a staggering 3.5 percentage points as its officials pursued efforts to get help from Russia via a multibillion-euro loan.

Southeast Asian nations, backed by $10 billion from the World Bank, were the latest to join the rescue effort, agreeing to create a multibillion fund to help banks.

The fund will buy up toxic debt and support banks in the region, Philippines President Gloria Macapagal Arroyo said.

British unemployment rose the most in 17 years in the three months to August as the jobless rate increased to 5.7 percent, its highest level in eight years, official data showed.

German economic growth will only be slightly above zero in 2009, Finance Minister Peer Steinbrueck said. And two U.S. Federal Reserve officials noted risks to the world's biggest economy.

"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," Janet Yellen, president of the Federal Reserve Bank of San Francisco, said on Tuesday.

World governments have pledged about $3.2 trillion to shore up banks and revive bank-to-bank lending -- that on top of open-ended central bank commitments to inject funds into money markets and a coordinated round of interest rate cuts last week.

Lending rates fell, but traders said there was no real evidence of lending between banks for anything but short periods with so much central bank cash on offer.

In London, Libor interbank rates for overnight dollar deposits fell to 2.14375 percent from 2.18125 on Tuesday. Three-month dollars rates dropped to 4.55000 percent from 4.63500.

NEW BRETTON WOODS

The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.

Democrat Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.

French President Nicolas Sarkozy and Britain's Brown say post-World War II financial architecture is no longer adequate.

As current European Union President, Sarkozy will seek the backing of the other 26 EU states to hold an international conference as early as next month on reforming the world financial order put in place by the 1944 Bretton Woods conference.

Brown is also advocating a "new Bretton Woods."

Measures could entail a rethinking of supervisory rules on markets, banks, mortgage firms, hedge funds and private equity. The European Commission will also propose higher guarantees for bank deposits and guidelines on executive pay.

(Reporting by Reuters bureaus around the world; Editing by Steve Orlofsky)

Regions : Europe

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