WASHINGTON (Reuters) - Major central banks should ease monetary policy in coordination to give a powerful boost to market confidence and help restore stuttering global growth, a leading group of international bankers said on Thursday.
The Institute of International Finance called on the Group of 20 emerging and developed nations to deliver this medicine as part of a bold plan to revitalize economic growth and job creation at their summit in Los Cabos, Mexico, next week.
“This is a ripe opportunity,” said Charles Dallara, managing director of IIF, which represents many of the world’s largest banks and finance companies.
Four or five central banks from industrialized and developing nations easing simultaneously, based on their own national economic conditions, would have substantial benefits, he said.
Given the current precarious state of economic, political and social conditions, the world needs the type of bold leadership the G20 last exercised at its London summit in 2009, he said. At that time, leaders agreed on $1 trillion in fiscal stimulus, which helped rescue the global economy from its worst financial crisis in more than 70 years.
Three years later, global growth is sliding once more - hit by economic turmoil in Europe, fiscal challenges in the United States and Japan, and slowdowns in emerging economies. Time is running out for leaders to act, Dallara said.
“The world is in serious need of a positive confidence shock. We have had too many negative ones in the past year or so. The time is nigh,” he said at a news conference.
In an open letter to Mexican President Felipe Calderon ahead of the G20 summit on Monday and Tuesday, the IIF said: “Markets will be looking expectantly for evidence of a globally coordinated policy response targeted to revive growth prospects worldwide on a sustainable basis.”
The IIF urged European leaders to offer a clear road map, including a timetable, for moving toward fiscal and banking union to strengthen their monetary union. The first elements should be outlined in Los Cabos, ahead of the European Union summit at the end of the month, it said.
Leaders from the European Union also should show readiness to ease the fiscal adjustment timetable for Greece and be prepared to inject additional money into its bailout program on the scale of 10 billion to 20 billion euros, the IIF said.
The International Monetary Fund also could help Europe by providing additional support, such as precautionary credit to any country that runs into financing trouble and coordinating a fund to provide labor retraining, it said.
“While the most difficult decisions must, of course, be made within the heart of Europe, Europe’s leaders require the support of the G20 and the international financial institutions to strengthen market confidence that a solution is at hand,” the banking group said in the letter.
For the United States, “a strong case can be made” for extending the Bush-era tax cuts now and taking other steps to avoid a sharp fiscal contraction in early 2013, it added.
The IIF also repeated its warnings that excessive bank regulatory zeal and stricter national standards than the globally agreed bank capital and risk management rules are harming credit availability and weakening growth.
The IIF represents major money center banks, insurance companies and investment funds in more than 70 countries.
Reporting by Stella Dawson; Editing by Steve Orlofsky