Political leaders urged U.S. President-elect Barack Obama on Wednesday to help forge a new economic order and lead the world out of its worst financial crisis since the 1930s.
Excitement about the election of Democrat Obama as the first black U.S. President was tempered by an awareness of the challenges he faces as the world’s biggest economy labors in recession.
“We need to change the current crisis into a new opportunity. We need a new deal for a new world,” said European Commission President Jose Manuel Barroso. “I sincerely hope that with the leadership of President Obama, the United States of America will join forces with Europe to drive this new deal,” he added.
Initial market reaction was muted, with economic gloom remaining the major focus. The dollar rose against major currencies following its biggest one-day slide in 13 years.
Asian stocks gained but ended off highs and European shares shed three percent. Analysts said a victory for Obama had been largely priced in and concerns about the global economy were paramount.
Obama does not take office until January, leaving outgoing President George W. Bush to host a summit of world leaders in Washington on Nov. 15 to discuss the global financial crisis which has its roots in the collapse of the U.S. housing market.
RATE CUTS AMID THE GLOOM
That summit will tackle new ways to regulate the world’s financial sector as the world heads into recession. Governments and central banks are trying to soften the impact of the downturn with cheaper lending and stimulus measures, which have already amounted to around $4 trillion.
Germany’s cabinet agreed a package of measures to give Europe’s biggest economy a €50 billion ($64.2 billion) boost and protect about 1 million jobs, a government source said. The plan is designed to help ordinary Germans after the government introduced a €500 billion ($642 billion) bank rescue package to help restore confidence in the financial system last month. It includes extra funds for small and medium-sized firms to borrow, tax breaks on new cars and funding for infrastructure projects and building work.
Gloomy data from Britain and the 15-nation Euro zone added to expectations of hefty interest rate cuts on Thursday. British manufacturing output fell for the seventh month and by much more than expected in September to mark the longest stretch of monthly declines in 28 years. In the Euro zone, service sector activity touched a fresh decade low in October.
The Bank of England and the European Central Bank (ECB) are expected to cut their rates on Thursday by at least 50 points, having cut four weeks ago as part of a coordinated round.
Australia, which cut rates by 75 basis points on Tuesday, slashed its economic growth forecast.
Bank of Japan Governor Masaaki Shirakawa said risks of economic weakness remained the bank’s main concern in the face of the global financial crisis, but warned that too big a cut in interest rates in Japan could distort the market.
Obama will move quickly to appoint his top team.
The next Treasury Secretary, who could be named within days, will inherit one of the hottest seats in Washington, faced both with piloting a $700 billion bailout package and the regulatory reform needed to prevent a repeat of the crisis.
The short list likely includes former Treasury secretary Lawrence Summers, ex-Federal Reserve Chairman Paul Volcker and Timothy Geithner, president of the Federal Reserve Bank of New York.
Obama, whose popular support strengthened on perceptions that he has a better grip on the economic crisis, has advocated a second government stimulus package worth $175 billion that would include money for investments in infrastructure as well as another round of tax rebates.
The U.S. Treasury is expected to announce on Wednesday the return of the three-year note when it sets out plans for borrowing which could total $2.1 trillion in the current fiscal year, to fund its massive bailout program.
The financial crisis, which stemmed from a U.S. housing market collapse, has redrawn the banking landscape and authorities are pushing for changes to its corporate culture.
Swiss bank UBS AG said its chairman and board may repay previously granted bonuses as part of a report on pay at the company due at a shareholder meeting later this month.
BNP Paribas, France’s biggest bank by market capitalization, said third quarter net profit more than halved due to higher provisions tied to the financial crisis.
Italian Prime Minister Silvio Berlusconi said the government was working on support for banks, families and businesses. The support plan for banks is not yet definitive, while the only certainty is €16 billion ($20.54 billion) for infrastructure, he told reporters on the margins of a trade show.
(Additional reporting by Reuters bureaus worldwide, editing by Mike Peacock)
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