Europe plans while IMF warns of meltdown

[newsroom]

PARIS - World powers vowed to keep a united front to solve the financial crisis as the IMF warned that the global system was on the brink of meltdown ahead of new European crisis talks in Paris on Sunday

Leaders of the 15 eurozone countries plus Britain are gathering in the French capital to announce a new package of measures to protect their banks from the global financial crisis.

The European meeting comes a day after leading emerging nations met in Washington for vital Group of 20 (G20) talks on the sidelines of the annual meeting of the 185-member International Monetary Fund (IMF).

The G20 grouping of countries which collectively account for 85 percent of the global economy said they had agreed to use "all financial and economic tools" to stabilise the system.

These efforts would be "closely communicated so that the action of one country does not come at the expense of others or the stability of the system as a whole," said a joint statement.

The head of the IMF, Dominique Strauss-Kahn, claimed a breakthrough with the first global pledge by members of his organisation to cooperate to stabilise turmoil in the financial sector.

He had earlier warned that the financial system risked collapse.

"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," he said.

Coordination of actions to tackle the financial crisis is considered vital to prevent the actions of one country harming another and exacerbating the problems of bank solvency and credit shortages.

In the Great Depression of the 1930s, so-called "beggar-thy-neighbour" measures taken unilaterally by countries are considered to have deepened the economic pain.

The different groups that have met since Friday in Washington -- the Group of Seven, the Group of 20 and IMF members -- have all supported a five-point action plan to stabilise the financial system.

It is vague on details and contains no timeframe, but commits countries to support institutions underpinning the international financial system, to take measures to get credit flowing, to assist banks in raising capital and to reassure savers.

The plan also commits them to helping restart frozen markets for mortgage-backed securities, complicated financial instruments that have plummeted in value and have exposed banks to billions of dollars of losses.

It remains to be seen if the reassuring messages will be enough to calm stock markets Monday after one of the worst weeks in economic history last week.

US President George W. Bush said the world's richest economies in the Group of Seven were united on a "serious global response" to the financial meltdown.

"We will stand together in addressing this threat to our prosperity. We will do what it takes to resolve this crisis. And the world's economy will emerge stronger as a result," he said.

Among other announcements Saturday, the main policy-making body of the IMF said the institution, a lender of last-resort tasked with stabilising the monetary system, stood ready to lend to countries in need of capital.