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G-7 statement

I need official Japanese translation.  I've got it.

G-7 Finance Ministers and Central Bank Governors
Plan of Action

Washington— The G-7 agrees today that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth. We agree to:

1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.

2. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.

3. Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

4. Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits.

5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.

The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF’s critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our cooperation and work with others to accomplish this plan.

WSJ noted (underlined by me):

Among the guidelines, countries agreed to "use all available tools" to prevent systemically important financial institutions from failing; to ensure that bank deposit insurance programs are solid; to ensure that banks can raise capital from government as well as private sources "in sufficient amounts to reestablish confidence and permit them to continue lending to households and businesses;" to take steps to unfreeze credit and money markets, and ensure that financial institutions have access to liquidity.

The principles are vague enough that they could be interpreted in many ways, which for some countries may include more dramatic action such as guaranteeing bank debt, as the U.K. has already done.

But the G-7 decision to stick to generalities Friday raised the risk of further market chaos. Many investors and traders had been hoping for a dramatic G-7 accord, such as a concrete agreement to guarantee bank debt.

This is interesting:

Another of the principles: No country should take a step that worsens financial conditions in another country. During the 1930s, countries raised trade tariffs in a desperate effort to protect their own industries, but ended up worsening the Great Depression instead.

During the current crisis, Ireland chose to guarantee all bank deposits in an effort to reassure savers. Germany followed suit, out of concern that deposits would flow out of German banks and into Irish ones. Denmark and Greece have also agreed to cover all bank deposits, while Spain, Sweden, Italy, the U.S. and the U.K. raised their insurance caps.

I'm afraid this principle works both ways: good and/or bad.  It looks good, but it could prevent actually policy move of one country.  For example, WSJ (Oct.8) noted:

The U.K. wants to keep deposits from flowing to countries such as Ireland and Germany that have moved to guarantee all deposits. European Union finance ministers also agreed Tuesday to raise minimum deposit insurance across the bloc.

So, I wonder if the principle of not harming other country's financial condition can prevent Ireland-like unilateral policy action on the ground that the action will cause damage on U.K. That would be a topic of elementary game theory.

[Update] I got this from Reuters:



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