Nations promise new measures to revive global economy

Japan joins Fed, drops borrowing rate to near zero

By Mike Peacock
Reuters / December 21, 2008
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LONDON - Japan, Canada, Germany, and China yesterday pledged new measures to confront a financial crisis that has toppled banks and endangered the global auto industry.

Tokyo joined governments worldwide in pledging hundreds of billions of dollars in fiscal stimulus to lessen the impact of the crisis on their economies, many of which, Japan's included, are already in recession.

A $54 billion supplementary budget for the current fiscal year, which was approved by the Japanese Cabinet yesterday, will help finance already announced stimulus measures.

The government of Prime Minister Taro Aso proposed a $302.3 billion stimulus package in October and a $481.5 billion plan earlier this month. Measures include expanded credits for small businesses, lower highway tolls, and a cash payment to every household to spur spending.

The Japanese Finance Ministry yesterday proposed a budget calling for a spending increase of 6.6 percent to $990.9 billion for the next fiscal year, a record for an initial spending proposal. Japan, which is the world's second-largest economy, fell into a recession in the third quarter.

Because tax revenues are expected to fall, Japan's primary budget deficit will jump to more than $145.6 billion from $56 billion this year, and the government plans to boost bond issuances by 31 percent to cover the revenue shortfall.

The Japanese central bank cut its key interest rate to 0.1 percent last week, joining the US Federal Reserve in pushing borrowing costs close to zero.

Aso and his Liberal Democratic Party have been criticized for lack of leadership in the crisis, and the prime minister's approval ratings have plunged.

Chancellor Angela Merkel of Germany said yesterday that her country would take "a further step" in January to boost its economy, having previously limited herself to saying government leaders would meet in the new year to review the situation.

In her weekly podcast, Merkel said Berlin would do everything possible next year to keep the economy - already in recession - on a sound footing, after passing a stimulus package two weeks ago that was criticized as insufficient.

In Canada, Prime Minister Stephen Harper unveiled $3.3 billion in emergency loans to the Canadian branches of Detroit's ailing automakers to keep them operating while they restructure their businesses. The lifeline comes just a day after the White House announced a $17.4 billion package to shore up Detroit's auto industry.

Harper also announced two new federal measures to support the overall industry: one to benefit automotive suppliers and a second to help consumers get credit to buy cars.

China expanded its pledge to help neighbors ride out the crisis, saying it was willing to meet requests for assistance from Taiwan. Ties between China and Taiwan, separated since the end of the Chinese civil war in 1949, have been warming since President Ma Ying-jeou took office in Taiwan in May.

"If . . . Taiwan asks for measures to ease its economic difficulties, the mainland is willing to do its utmost to provide aid," said Jia Qinglin, the fourth most senior leader of China's ruling Communist Party.

In Belgium, King Albert consulted political leaders yesterday after the government collapsed after allegations that it mishandled its effort to bail out financial group Fortis.

Prime Minister Yves Leterme tendered his government's resignation Friday after a report by the Supreme Court found signs of political meddling to sway a court ruling on the future of the bank, a victim of the credit crunch. Leterme has denied the accusations.

The king, under the constitution, must decide whether to accept the resignation, but Belgian media said there was little chance of Leterme staying on.

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