- WASHINGTON (Reuters) - There is nothing like a few choice words from Federal
Reserve Chairman Alan Greenspan to reassure the world that Washington is
serious about taking the lead role in saving the global economy from collapse.
When the world's most powerful central banker signaled to U.S. lawmakers
Wednesday that he may cut key interest rates in response to mounting international
turmoil, his message was loud and clear: Something has to be done right
away to put an end to the firestorm that is threatening to engulf the globe.
``Greenspan, more than any other central banker around the world, understands
that this is a global liquidity crisis that will deepen and will assuredly
hurt all the major economies,'' said Catherine Mann, a former Federal Reserve
economist and now a senior fellow at the Institute for International Economics.
``He is taking on a role as a global financial leader.'' Greenspan is facing
little, if any, competition for that role: Japan, along with the rest of
Asia, is stuck in a painful recession. Most of Washington's key partners
in Europe -- prime among them Germany -- are preoccupied with laying the
foundations for a single currency and have stated clearly that they do
not plan to cut rates any time soon. Even within the narrow confines of
Washington, the 72-year-old Greenspan seems to be the only one left who
can make a credible case that he is capable of taking charge.
U.S. President Clinton is hobbled by a sex-and-perjury scandal. Meanwhile
the Treasury Department, headed by veteran Wall Street pro Robert Rubin,
is fighting an uphill struggle to get congressional approval for its bid
to get fresh funds for the cash-strapped International Monetary Fund. Only
10 days ago the Group of Seven major industrial nations boosted market
hopes for a joint rate cut -- a move that could help stem the flight of
capital out of battered emerging markets and into less risky U.S. assets
-- by alluding to the need for ''close cooperation'' among major economies.
But hopes that the club of rich nations would actually get its act together
and agree on a joint easing move were quickly quashed when European central
bankers, led by German Bundesbank President Hans Tietmeyer, stressed they
saw no need for a cut because their domestic situations did not warrant
such a move. In congressional testimony just two days after the G7 statement,
Greenspan dealt the final blow to any vision of G7 coordination when he
acknowledged there was no such effort.
``The Europeans underestimate substantially the impact of the crisis on
economic activity,'' said Mann. ``This is Europe's first opportunity to
act as a global player, to look beyond just their narrow self interest.
This is a global crisis.'' If anybody needed a reminder of the potential
impact of the crisis on economies and financial systems everywhere, the
near-collapse of a major U.S. hedge fund, Long-Term Capital Management
L.P, drove home the dangers of financial contagion. The fund required a
$3.75 billion bailout by 15 banks, coordinated by New York Federal Reserve
Bank, after severe losses had drained its capital. Bank shares across Europe
tumbled as creditors revealed hefty exposures to the fund. Sure, Europe
has come up with a laundry list of ideas on how to improve the workings
of the IMF -- most recently from Britain and France -- but there have been
no signs yet that the continent is ready to back Greenspan's push for lower
rates. Asia and Latin America, the latest region to feel the brunt of the
financial storm, have all but given up hope for a coordinated move that
could give them some much-needed breathing space, analysts said. ``They
recognize that the Europeans won't go along,'' said Sung Won Sohn, chief
economist at Minneapolis-based Norwest Corp. ``They're hanging all their
hopes on Greenspan.'' They will have to wait until Tuesday's meeting of
the Fed's rate-setting committee to find out whether Greenspan will actually
deliver what he signaled. But even a small cut in the key overnight federal
funds rate from its current level of 5.5 percent would help to underpin
his global leadership role. ``The issue is not so much the size of the
cut but the fact that somebody as credible as Greenspan is doing something,''
said Sohn. ``The signal is much more important than the size.'' ^REUTERS@