Greenspan Takes Lead
to Save World Economy -
'Global Financial Leader'
By Knut Engelmann
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@