De-globalization a new threat to the world, Brown warns

Posted at 01/20/09 1:14 AM

LONDON - British Prime Minister Gordon Brown warned Monday of a "damaging spiral" of de-globalization as he launched a new multi-billion dollar bank rescue.

Elsewhere, the European Commission predicted the EU economy will shrink 1.8 percent this year with surging unemployment and government deficits.

Japan's industrial output plunged a record 8.5 percent in November and a regional Japanese bank said it was considering asking for public funds.

The British prime minister, widely praised for his efforts to pull banks out of crisis last year, said no country can counter the economic crisis alone.

"Unless we come together to address these problems in a coordinated way, the world is at risk of a damaging spiral of de-globalizing. It is fuelled by a combination of deleveraging and national-only policy solutions," Brown said.

He called for the "widest possible international agreement" and warned that protectionism "could be every bit as damaging to jobs and businesses in every part of the world, as the protectionism in trade has been in the past."

Brown, despite taking a leading role in the international battle against the financial crisis, has been forced by mounting bad debts to offer new protection to British banks. The government said it would coordinate its new insurance scheme to protect banks from toxic assets with other countries.

Banks would pay to have bad loans underwritten by the government, leaving them with more scope to increase lending to cash-starved businesses and individuals, the government said.

As part of the plans, the Bank of England would purchase bank-owned assets worth up to 50 billion pounds.

The measures follow October's 37-billion-pound recapitalization scheme, which failed to increase lending by banks suffering from the global credit crunch.

British media said the new cash injection could take total spending to 200 billion pounds (295 billion dollars).

Brown slammed Royal Bank of Scotland for making "clearly wrong" investment decisions after it said it expected an annual loss of up to 28 billion pounds -- a record in British corporate history -- due to the credit crisis and its part-takeover of ABN Amro.

The news sent shares in the state-controlled bank crashing by more than 71 percent to just 10 pence (11 euro cents). Other banks were also down sharply.

The European Commission put out a drastically more pessimistic forecast of prospects for Europe and other countries are planning new measures.

It said the 27-nation EU economy would contracting by 1.8 percent this year before achieving growth next year of 0.5 percent. The eurozone economy would shrink 1.9 percent this year.

It predicted unemployment will climb to levels not seen in Europe for over decade.

Standard and Poor's rating service lowered its assessment of Spain's long-term sovereign debt by one notch to AA-plus from AAA. The downgrade, which came after similar action against Greece last week, followed mounting warnings about Spain's rapidly slowing economy.

Germany's Chancellor Angela Merkel -- who has ordered an 80 billion euro economic stimulus -- warned against the danger of mounting debt in the "period of deep global degradation."

"In order to meet its national responsibility, the federal government has decided, in addition to having a plan to repay its debts, to lock long-term debt reduction into the German constitution," she said.

The auto sector has been badly battered and France could take stakes in struggling car makers, Peugeot-Citroen and Renault, Industry Minister Luc Chatel said in an newspaper interview published ahead of a government package on Tuesday.

Japan's Mazda Motor said it would cut its managers' salaries by up to 10 percent and slash production at domestic plants.

Japanese industrial output plunged a record 8.5 percent in November -- the biggest fall since records began in 1953, official figures showed.

There were also fresh signs of trouble in Japan's financial sector as a regional bank, Sapporo Hokuyo Holdings, said it was considering applying for public funds to help it weather the financial crisis.

It would be the first Japanese bank to do so since parliament approved a new law last month allowing the government to pump public funds into banks.