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By James Cusick, Westminster Editor
Bush calls for joint global action on economic meltdown ... Brown says British spirit can lead the way to pull through ... Germany: markets must serve the people, not ruin them
THE WORLD'S financial systems are on the "brink of systemic meltdown," the head of the International Monetary Fund warned in Washington last night.
Dominique Strauss-Kahn said that despite efforts to restore confidence in global banking and stock markets, the rich nations of the world had so far failed to halt the slide which created havoc on world markets last week and still threaten a repeat performance when they reopen tomorrow.
With no end in sight to the global crisis, Gordon Brown appeared last night to try to evoke a wartime Churchillian blitz spirit by suggesting that he had visited cities and towns during the crisis and "found a calm, determined British spirit".
The prime minister, appearing to revel in his new-found status as a world statesman in a time of crisis, said: "I know that we will come through this as a country and emerge a fairer and more successful nation than ever before."
Short of adding we will fight the irresponsible bankers on the beaches, in a Sunday newspaper he added: "Together we can win the fight for Britain's future."
Washington, however, took a less melodramatic perspective.
Strauss-Kahn, head of the IMF, said the crisis was being fanned by fears over debt-ridden banks. He was speaking after talks in Washington with President George Bush and finance ministers from the G7 group of rich nations.
With the IMF and the World Bank continuing their meeting today in Washington, there remains hope that the crisis talks can deliver more than the G7 gathering last Friday. The group issued a short five-point plan that pledged to ensure that banks and other financial institutions can raise public and private capital to begin re-establishing confidence and begin lending again.
With expectations raised that this was a make-or-break meeting, the thin text was seen as disappointing.
Devoid of specific numbers, the G7 statement, the shortest in the group's history, was yesterday described by some City analysts as "without answers because they don't have any".
Strauss-Kahn said that the global financial system had been pushed to brink of meltdown because of "intensifying solvency concerns about a number of the largest US-based banks and European financial institutions".
The IMF has already activated its emergency finance mechanism to hit countries worst hit by the financial crisis. The scheme was last used in 1997 during the Asian financial crisis to help speed up the approval of loans.
But there appears to be little optimism that the IMF can come up with any quick or new radical plan to kick-start stagnant lending between the world's banks.
President Bush acknowledged as much yesterday. After his White House meeting with the IMF and G7 ministers, rather than sounding optimistic about what the IMF and the World Bank could do, he chose instead to issue a warning about the growing threat of protectionism as countries focused on their own difficulties rather than seek a co-ordinated recovery strategy.
The US president said: "We must ensure the actions of one country do not contract or undermine the actions of another."
He said the world was now "inter-connected" and that "no nation will gain by driving down the fortunes of another. We are in this together. We will come through this together."
Brown used exactly the same language in a Sunday paper today, prompting suggestions that the two had carefully agreed their response. Brown said: "No country - not even the biggest - can make it on their own at a time like this. We are all in this together and have to solve it together."
Hopes that European leaders would unite and begin the process of a global response appeared to disappear yesterday when President Nicolas Sarkozy of France and the German chancellor, Angela Merkel, made it clear there would be no common financial rescue package put in place for the European Union but she said: "Governments must redirect their markets so they serve the people, and not ruin them."
The two leaders held bilateral talks as they met to inaugurate a memorial in France to General Charles de Gaulle. The meeting was ahead of a summit in Paris today of the 15 countries in the euro currency zone.
Ahead of that meeting, Gordon Brown will be in Paris for private talks with Sarkozy and other leaders. But despite signs that some European countries are positive about the £500 billion package Britain revealed last week, which will inject new capital into markets and offer guarantees for inter-bank loans along with directly buying preference shares in the banks themselves, there appears to be no hint that Brown can begin putting together a "global solution" that starts within Europe.
Brown described the week ahead for the EU as "a moment of truth where the stakes could not be higher". He said that in his meeting with Sarkozy and others he would "try and persuade other European countries to adopt the comprehensive approach we have taken".
It's expected that when EU leaders gather in Brussels on Wednesday, the focus will be on a "common approach" to the crisis but not a formal pan-EU plan to match the US treasury's $700bn Congress-approved deal.
As the fall-out from the collapse of markets throughout Europe continues, there were new hopes of progress last night in talks in Iceland between Treasury officials and their Icelandic counterparts, over the frozen deposits of UK savers in collapsed Icelandic banks.
Billions of pounds in personal savings, along with £1 billion in cash belonging to local authorities, charities and other public bodies, have been at risk. But in a joint statement from the Treasury and the Icelandic authorities, it was said their talks had been "friendly" and that "significant progress was made on retail depositors of Icesave with arrangements agreed in principle for an accelerated payout to depositors".
The statement added that the two delegations would work closely with each other on remaining issues over the next few days.
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