Obama Win Met with Urgent Call for Global Action

 
 
By Reuters -  |  Posted 2008-11-05
 
 
 

LONDON/NEW YORK (Reuters) - Political leaders urged U.S. President-elect Barack Obama on Wednesday to help forge a new economic order to 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.

On the morning after Obama's victory, ADP Employer Services said U.S. private employers cut a larger-than-expected 157,000 jobs in October.

That suggests the government's more comprehensive nonfarm payrolls report on Friday will show a loss of 200,000 jobs, said Joel Prakken, chairman of Macroeconomic Advisers.

Market reaction to the election was sober, with the dollar up 0.3 percent against a basket of currencies and the Dow Jones Industrial average down 1.7 percent.

In Europe, where a 50 billion euro ($64.2 billion) stimulus package dominated the news, shares were down 2 percent, but Asian stocks earlier closed at three-week highs.

Obama has also proposed a new economic stimulus package to help revive the economy, which is still staggering from a mortgage crisis that left financial institutions overleveraged, undermined confidence, froze credit markets and transformed Wall Street.

"The market has already responded to Obama. I do not see a consistent read between the bond market, the stock market and the currency markets to say this is the reaction to Obama," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

"The forces at work in the global capital markets are very big, bigger than who gets elected president of the United States. People should be prepared for a deep economic downturn in the U.S.," he said.

ECONOMIC SUMMIT ON THE AGENDA

Obama takes office on January 20, leaving outgoing President George W. Bush to host a summit of world leaders in Washington on November 15 to discuss the global financial crisis which has its roots in the collapse of the U.S. housing market.

That summit will tackle new ways to regulate the world's financial sector as the world heads into recession.

Authorities are trying to soften the impact of the downturn with support for banks, cheaper lending and stimulus measures, which have already amounted to around $4 trillion.

Germany's cabinet agreed a package of measures on Wednesday to give Europe's biggest economy a 50 billion euro ($64.2 billion) boost and protect about 1 million jobs, following a 500 billion euro bank rescue package 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.

Italy will approve a plan to support banks next week, which could use convertible bonds or preferred shares, Prime Minister Silvio Berlusconi said.

The Italian government is also working on measures to help families and businesses, and Unicredit will announce an extra 5 billion euros of loans available to small and medium-sized firms.

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 running to mark the longest stretch of declines in 28 years.

In the euro zone, service sector activity touched a fresh decade low in October while retail sales declined in September.

The Bank of England and the European Central Bank are expected to cut their rates on Thursday by at least 50 points, having cut four weeks ago as part of a coordinated round.

TREASURY TASKS

Obama is expected to 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 shortlist likely includes former Treasury Secretary Lawrence Summers, ex-Federal Reserve Chairman Paul Volcker and Timothy Geithner, head of the Federal Reserve Bank of New York.

Obama 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 that could total $2.1 trillion in the current fiscal year to fund its massive bailout program.

(Additional reporting by Reuters bureaus worldwide; Editing by Mike Peacock and Brian Moss)