As the world waited and watched to see if the US Senate would pass a repackaged US$700 billion (Dh2.57 trillion) rescue plan, business leaders and officials expressed their support but stopped short of offering any financial help. The effects were already being felt in the Gulf, with syndicated lending almost non-existent. Bankers say several loans have been affected by deteriorating market conditions, with international banks unwilling to underwrite deals in the GCC.
The Middle East had borrowed $91bn by the end of the third quarter, 16.5 per cent down on last year's $109bn for the same period, according to Reuters loan pricing data. Jean-Claude Trichet, the president of the European Central Bank, said the rescue package must be passed to shore up confidence in the global financial system to allow lending to restart. "It has to go, for the sake of the US and for the sake of global finance," he said. "I am confident, but of course it is the decision of the US."
That view was echoed in Moscow, although in a rather less amicable tone. "The US owes it to other economies to approve Treasury secretary Henry Paulson's $700bn bailout plan," said Alexei Kudrin, the Russian finance minister. "I think Paulson's plan is necessary; it's the responsibility of the US to other countries," he said. The French president Nicolas Sarkozy has called for European representatives of the G8 countries - seven of the world's leading industrialised nations, plus Russia - to meet this Saturday in Paris. In the run-up to that meeting, the EU has called for member states to show a united front.
"We are asking and urging member states for closer co-operation. It is critically important for confidence in the markets," said José Manuel Barroso, the EU Commission president. "It's not just a problem of injecting liquidity, we also need to inject credibility in the European response." He said the banking meltdown was now "most likely" to impact on the wider economy, and governments had to think long term on fixing the financial system to restore stability and confidence.
"The real economy is now under very severe pressure," Mr Barroso said, calling for a global response to deal with a crisis affecting financial markets and economies around the world. European regulators echoed his views and are asking for stricter bank-capital rules. Charlie McCreevy, the EU financial services commissioner, called for banks to hold more capital for asset-backed bonds and a stop to selling questionable loans to investors.
"We in the European Commission can assist in providing some of the solutions," he said. "But there is no one single answer to the financial turmoil." Angel Gurria, the secretary general of the Paris-based Organisation for Economic Co-operation and Development (OECD), suggested that European nations might have to consider a joint bailout plan similar to the massive US rescue package. "Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic," Mr Gurria told European lawmakers in Strasbourg, France.
"The piecemeal approach may not work in Europe either. The situation is indeed critical. We are facing the worst financial crisis since the Great Depression and its consequences are already spreading beyond the financial sphere, throughout the globe," he said. He called on the OECD's 30 member nations to "draw up lessons and conduct a major debate on the necessary reform of the international financial system".
Mr Gurria said the EU, US and others had to learn from the flaws of the current financial system, notably allowing banks and lenders to hand out "ninja loans" - no income, no job and (no) assets - which he said had to end. The impact continues to spread to financial institutions and countries. Credit-rating companies are turning negative on Iceland after the government bailed out the island nation's third-biggest bank. There were widespread calls to protect bank deposits.
The Irish government has already moved to guarantee all bank accounts for the next two years. The action was designed to stop a run on the banks, after shares fell sharply on Monday. The British government is now said to be considering a similar package. Investors are also demanding higher yields on the debt of European financial institutions. This reflects the fear that more might fail. Share markets around the world closed in positive territory, although trading figures were thin.
Traders appear to have lost confidence that many European banks could cover their debt or absorb huge losses racked up from high-risk investments based on US housing loans. Stock prices only recovered after European governments moved to shore up banks by injecting them with large amounts of money. Even right-wing commentators in Europe, who might be thought to reject a bailout, expressed hopes that it would go ahead.
"Delicious as it would be to see some bankers swinging gently in the autumn breeze from lamp posts outside their offices, we cannot afford that indulgence," wrote Max Hastings in today's Daily Mail. "We should pray that the US Congress thinks better of its impulse on Monday, prompted by the fury of the American people, who wanted to leave the bankers to face the consequences of their great failure. If they go down, we go with them."
* With agencies firstname.lastname@example.org