World financial news

European finance chiefs said the European Central Bank is doing what it can to fight the worst recession since World War II even after policy makers yesterday cut borrowing costs by less than economists expected.

The Frankfurt-based ECB yesterday reduced its benchmark rate by a quarter point to 1.25 percent, compared with the half- point reduction forecast by 49 of 55 economists in a Bloomberg survey. The euro-region economy may shrink as much as 4.1 percent this year, faster than the ECB forecasts, according to the Organization for Economic Cooperation and Development.

“I expected a 50 basis-point cut yesterday,” Cypriot Finance Minister Charilaos Stavrakis told reporters today in Prague where he met with finance chiefs from the European Union, adding that the central bank had “done a good job.” Finnish Finance Minister Jyrki Katainen said “there is more room for extra cuts.”

ECB President Jean-Claude Trichet at the Prague meeting today repeated that the central bank may lower the key rate further next month, when he said policy makers also will decide on any new “non-standard measures.” The U.S. Federal Reserve, the Bank of England and the Bank of Japan have cut their key rates to almost zero and are pumping money into their economies by buying government and company securities.

The ECB is “making an effort” to “ease policy,” Portuguese Finance Minister Fernando Teixeira dos Santos said. Austrian counterpart Josef Proell said he “hoped” the rate reductions so far may be “enough.”

‘Behind the Curve’

The euro declined against the dollar on speculation the central bank is moving too slowly in tackling the crisis. The single currency fell to $1.3437 as of 7:06 p.m. in Prague after rising to $1.3461 yesterday.

The decision by policy makers to wait until next month to decide on other tools “is probably euro negative” on the longer term as it confirms that the ECB is behind the curve,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International, the biggest Dutch mortgage lender.

While the rate of contraction in European manufacturing and services industries is slowing, European leaders face increasing pressure at home as unemployment continues to increase. In the U.S., the unemployment rate jumped in March to the highest level since 1983 as the economy lost 663,000 jobs.

“There are encouraging signs, but they are not many,” said Luxembourg Finance Minister Jean-Claude Juncker classic car insurance. Trichet said 2009 “appears to be a difficult” year.

Sagging Demand

Sagging demand has employers from French car manufacturer Renault SA to German Heidelberger Druckmaschinen AG, the world’s largest maker of printing presses, reduce production, postpone investment and fire workers.

European Union Monetary Affairs Commissioner Joaquin Almunia today suggested that “materializing downside risks” will probably prompt the EU to cut its economic-growth forecasts. The updated projections will be released on May 4.

At the same time, both Almunia and Trichet stressed the need to envisage the policies that will be needed when growth returns. “We have to be credible in the exit strategies for all we are doing today, fiscal policies, monetary policies,” Trichet told reporters.

Finance ministers also welcomed the Group of 20’s blueprint for stronger regulation of the finance industry, including stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks and a pledge for more than $1 trillion in emergency aid to cushion the economic fallout.

Hedge Funds

“I am very satisfied” with the G-20 meeting, French Finance Minister Christine Lagarde told reporters, saying she saw “considerable progress.” German Finance Minister Peer Steinbrueck said the agreement by the G-20, which gathers the world’s largest industrialized nations and emerging economies, shouldn’t be “underestimated.”

Hedge funds that are “systemically important” will be subjected to greater oversight as will all key financial instruments, markets and instruments, the G-20 said. While German Chancellor Angela Merkel and French President Nicolas Sarkozy wanted all of the investment funds to brought under the spotlight, Czech Finance Minister Miroslav Kalousek told reporters that the hedge-fund rules that the G-20 agreed on are “sufficient.”

Trichet stressed the need to implement the measures “as rapidly as possible” in order to revive bank lending. Almunia said that “the treatment of impaired assets and the cleaning of balance sheets in the financial sector is of the essence.”

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