IMF's Christine Lagarde urges global action as G7 meet

Christine Lagarde: "Strong fiscal consolidation is essential to restore debt sustainability"

 International Monetary Fund chief Christine Lagarde has urged "bold action" on the faltering world economy, as the G7 group of leading economies met for talks in Marseille.

The G7 is discussing a "coordinated response" to the economic turmoil.

The two-day meeting comes as the Organisation for Economic Co-operation and Development (OECD) predicted a global slowdown this year.

Europe is also struggling with a sovereign debt crisis.

"The key message I wish to convey today [Friday] is that countries must act now - and act boldly - to steer their economies through this dangerous new phase of the recovery," Ms Lagarde said in London, before flying to the G7 meeting.

She also praised President Barack Obama's new $450bn (£282bn) jobs plan to try to boost the world's largest economy.

"All this is happening at a time when the scope for policy action is considerably narrower than when the crisis first erupted," she said. "But while the policy options may be fewer, there is a path to recovery."

'Credible' plans

Speaking at the same event in London before leaving for the G7 talks, Chancellor George Osborne vowed to stick to the UK's deficit reduction plan - which has so far helped the UK avoid the kind of bond market turmoil seen in the eurozone
"It is the rock of stability on which our economy is built," he said.

The IMF chief praised the UK's plans - with several caveats.

"Since the summer, the outlook has become more subdued - including in the rest of Europe and the United States, the UK's major trading partners. So risk levels are rising," she said.

The IMF chief praised the UK's plans - with several caveats.

"Since the summer, the outlook has become more subdued - including in the rest of Europe and the United States, the UK's major trading partners. So risk levels are rising," she said.
"The policy stance remains appropriate, but this heightened risk means a heightened readiness to respond - particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment."

In response, Labour's Ed Balls again argued for temporary tax cuts to help kick-start the economy.

"While George Osborne insists there can never be a change of course and we must plough on regardless, Christine Lagarde rightly warns ministers will need to act if slow growth and high unemployment continues," the shadow chancellor said.

Rocky road ahead

No communique will be issued after the talks in Marseille, according to French Finance Minister Francois Baroin.

Earlier, Japanese Finance Minister Jun Azumi said he would explain his nation's intervention to stem the increase in its currency, which has hurt its exporters.

"Japan's economy has been steadily recovering, but I'm concerned that it is showing some signs of downturn due to the yen's rise," Mr Azumi said.

"I want to share the view that it would be bad for the world economy if Japan's economy faces downturn."

The OECD predicts the G7 economies will grow by just 0.2% in the last three months of the year.

The group also expects 0.3% growth in the UK in the fourth quarter, but said the economy could contract by as much as 1%.

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Bank shares lead falls on US and European stock markets

Sharp falls in banking shares, notably in France, have led stock markets lower as concerns continue about the strength of the world economy.

The US Dow Jones index ended 2.7% down, after a dismal showing in Europe, where Frankfurt's Dax fell 4% and the FTSE 100 2.4%.

This was despite President Barack Obama's new $450bn (£282bn) jobs plan.

The resignation of the European Central Bank chief economist also rattled investors.

Reports suggest that Juergen Stark's departure was over disagreements about the central bank purchasing the debt of struggling eurozone economies.

The ECB has recently been buying up the debt of Spain and Italy - something historically opposed by many of the German policymakers as it may increase the potential risk on the ECB's own balance sheet.

Some argue that bond buying also discourages governments from taking action on their deficits.

Analysts suggested his departure could indicate a potentially damaging split at the central bank at a crucial time for the global economy.

"Evidently there are more and more ECB council members against the controversial purchase of bonds," said Marco Bagel, an analyst at Postbank.

"It suggests there is really a big row in the governing council and this is quite a severe step. It shows how divided the ECB is on this very crucial question," said Juergen Michels of Citigroup.

Bank losses

The share falls come at the end of another week of volatility in the stock markets, with shares swinging wildly between gains and losses on a daily basis.
Bank stocks were among the major decliners on Friday as investors continue to worry about their exposure to bad debt.

The rate that banks lend to each other - a measure of the confidence they have in each other's balance sheets - is at the highest it has been since July 2009.

In the UK, Barclays dropped 9.4% and Royal Bank of Scotland declined by 5.4%

Deutsche Bank fell 7%. France's Societe Generale fell 10.6% lower and Credit Agricole dropped 7.8%.

And the euro fell 1.6% against the US dollar, to $1.3664, down to a six-month low.

The G7 group of leading economies met in Marseille to consider a "coordinated response" to the faltering global economy.

Earlier, International Monetary Fund chief Christine Lagarde urged "bold action" on the global economy.

"The key message I wish to convey today is that countries must act now - and act boldly - to steer their economies through this dangerous new phase of the recovery," Ms Lagarde said.

The two-day meeting comes as the Organisation for Economic Co-operation and Development suggested it was possible that many major economies could go back into recession this year.

The OECD predicts the G7 economies will grow by just 0.2% in the last three months of the year.

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Juergen Stark in surprise resignation from ECB

European Central Bank chief economist Juergen Stark has resigned amid speculation of conflicts within the ECB over its bond-buying programme.

The ECB said the German was leaving "for personal reasons", but would stay in the job until a successor is found.

In February, German central bank boss Axel Weber quit the race to become the ECB's next president over the bank's policy of buying the debts of troubled eurozone governments.

Analysts said Mr Stark's surprise move pointed to continuing divisions in Germany over the ECB's direction.

European stock markets fell after the news, on concerns that any differences within the ECB would make tackling the eurozone debt crisis more problematic.

Mr Stark's departure comes almost three years before his term is due to expire in May 2014.

'Remarkable'

He was reportedly one of four members of the ECB who voted against last month's controversial decision to revive a programme of buying the bonds of indebted eurozone nations.

Former Bundesbank President Axel Weber, who had been the frontrunner to succeed ECB President Jean-Claude Trichet when he retires at the end of next month, resigned and withdrew from the race in February in opposition to a bond-buying policy.
"This is remarkable," said Manfred Neumann, economics professor at Bonn University. "Stark held the same view of the bond-buying as Axel Weber and the current Bundesbank president.

"This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB," he said.

In recent weeks, the ECB has bought more than 35bn euros (£30bn) in bonds, significantly reducing Italian and Spanish spreads over benchmark German Bunds, on top of the 76bn euros in Greek, Irish and Portuguese bonds it has bought since May 2010.

Politicians in Germany are under pressure amid public anger that they are helping to finance the bailouts of weaker economies.

There were reports on Friday that German deputy finance minister Joerg Asmussen will be appointed to replace Mr Stark.

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G8 pledges $38bn to Arab states as IMF recognises Libya

Finance ministers from the G8 group of industrialised countries have pledged nearly $40bn (£25bn) to several Arab countries to help with reconstruction and moves towards democracy.

The money will go to Egypt and Tunisia, which overthrew their autocratic leaders, as well as Morocco and Jordan.

In addition, the International Monetary Fund (IMF) has recognised Libya's post-Gaddafi leadership.

The G8 - the world's richest countries plus Russia - is meeting in Marseille.

In addition to the pledge of $38bn from G8 countries, the IMF is extending further funds.

"The IMF can actually extend an approximate total of $35bn for the region and particularly with the focus on those that are oil-importing countries because, as we know, they are the ones that are suffering the most from the high commodity prices, whether it's fuel or prices of food," said IMF head Christine Lagarde.

Morocco and Jordan, both monarchies, have seen some protests but have weathered the upheavals in the Arab world by offering constitutional reforms.

The total of $73bn in pledges nearly doubles the amount originally pledged by the G8 and lenders including the World Bank at an earlier summit in May.

The IMF decided to recognise Libya's National Transitional Council (NTC) as the legitimate representatives of the Libyan people, replacing fugitive leader Col Muammar Gaddafi. The move paves the way for the IMF to offer aid to the new authorities.

The IMF will send a team to Libya as soon as security permits

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Greek PM vows cuts as protesters clash with police

Fires were started during the protests

The Greek prime minister has vowed to press ahead with deep spending cuts, in his annual speech on the country's debt-ridden economy.


"We will push through all the major changes our country has needed for years," George Papandreou said in Greece's second city, Thessaloniki.

Public anger over cuts boiled over into clashes between police and protesters and more than 100 people were detained.

At least 20,000 people joined the protests in Thessaloniki.

Trade unionists, students, anarchists, taxi drivers and football fans were among those holding protests outside a trade fair in the city.

Greece is struggling to meet the terms of an international loan package.
In July, eurozone leaders announced a bailout worth 109bn euros ($155bn, £96.3bn), on top of a 110bn euro lifeline granted last year.

The government has sharply criticised other eurozone states for delaying ratification of the second bailout but it is struggling to meet conditions attached to the first.

Mr Papandreou's speech was designed to reassure EU and IMF lenders increasingly frustrated with delays in reforms and missed fiscal targets that Greece would press ahead with unpopular policies, correspondents say.

'Existential struggle'

"We decided to fight the battle to avoid a disaster for the country and its people and to stay in the euro," he told the trade fair.

"Any delay and wavering is dangerous for the country."

"We don't have the right to abandon this effort halfway through because if it remains half-done, [our] sacrifices will have been in vain," he added.
On Friday, Finance Minister Evangelos Venizelos was forced to deny rumours of impending bankruptcy, saying that the next two months would be "crucial for the very existence" of the country.

As Mr Papandreou was preparing to deliver his speech on Saturday, police were firing tear gas to drive back protesters, some of whom threw stones and set fires.

At one stage, protesters toppled metal crowd control barriers near the trade fair area.

Reuters news agency noted taxi drivers were among the most vocal protesters, with the government planning to open up their trade to competition.

A huge banner displayed by marchers in Thessaloniki read: "We owe nothing, we pay nothing, we sell nothing, we fear nothing."

Some clashes were also reported at a protest rally opposite the Greek parliament in the capital, Athens.

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Cameron rejects Russia security call over Litvinenko

David Cameron: "The fact is the two governments don't agree on Litvinenko"

David Cameron has rejected a call by Russia to restore links with its security services, which were frozen after the Alexander Litvinenko murder.

Relations between the UK and Russia have been strained since the Russian dissident's death in London in 2006.

The PM said in Moscow the UK would continue to challenge Russia's refusal to extradite the prime suspect.

But he said his one-day trip - the first talks there by a UK leader since 2005 - had improved trade links.

During a news conference with Russian President Dmitry Medvedev, he said they had agreed to increase co-operation in areas including commerce, technology and international issues.

Mr Medvedev called for the two countries to "reconstitute the contacts not only between the law enforcement agencies but between the special services".

However, Mr Cameron responded: "We haven't changed the arrangements between our security services, which were frozen after the Litvinenko issue.

"That is not being discussed as something that is going to change."

'Difficult issues'

The prime minister later met Russian counterpart, Vladimir Putin, who had not held substantive discussions with a British minister or official for more than four years as a result of the diplomatic row over the Litvinenko case.

Mr Putin said trade between the nations was "developing very successfully".
Mr Cameron had earlier admitted in a speech at Moscow State University that there remained "difficult issues that hamper mutual trust and co-operation" between the UK and Russia.

"We still disagree with you over the Litvinenko case. Our approach is simple and principled - when a crime is committed, that is a matter for the courts," he said.

The prime minister said victims and their families had a "right to justice".

"We can't pretend these differences don't exist. We need to keep working for an honest and open dialogue to address them candidly," he said.

"But, at the same time, we have a responsibility to recognise the many ways in which we do need each other, to end the old culture of tit for tat and find ways for us to work together to advance our mutual interests."

Mr Cameron spoke in Russian when he told his audience of students: "We are stronger together."

Asked by the BBC's James Landale whether the Litvinenko issue had been "parked" in the interests of trade, Mr Cameron said: "I'm not downplaying it in any way. It remains an issue between Britain and Russia.

"But I don't think that means we freeze the entire relationship."

Mr Medvedev said the legal traditions of different countries should be respected and that under the Russian constitution it was impossible for a Russian citizen to be extradited to a foreign country to stand trial.

"This will never happen whatever the circumstances," he said.

'Not complete thaw'
BP chairman Bob Dudley is among 24 senior executives from the UK in the travelling party. The visit is expected to result in £215m of deals, creating about 500 jobs in the UK.

Mr Putin, who could take over at the Kremlin again after elections next year, told Mr Cameron: "We are very glad to see you and this is the first visit by the PM of Great Britain in the past five years.

"Trade and economic development over the past years has been developing very successfully."

BBC Moscow correspondent Daniel Sandford said although the trip was a sign of a defrosting of relations, "it is not a complete thaw".

Mr Cameron later met six human rights activists including Oleg Orlov - a campaigner recently acquitted in a slander case against Chechen leader Ramzan Kadyrov - and Dmitry Muratov, editor of Novaya Gazeta, the newspaper for which Anna Politkovskaya reported before her murder in 2006.

Telling them he had raised the Litvinenko case, he added: "Having good relations doesn't mean sweeping problems under the carpet, it means talking about them."

Mr Litvinenko's widow, Marina, told the BBC's World Today programme she wanted to see those responsible for her husband's death brought to justice because until then "we will not have a normal progress of the relationship between these countries".

Mr Litvinenko, an outspoken Kremlin critic and former security official who had moved to the UK, was fatally poisoned with radioactive polonium-210 in 2006. His death led to both the UK and Russia expelling diplomats.

Moscow has refused a long-standing request from the UK to extradite the prime suspect in the case, Andrei Lugovoi. He is a former KGB officer who is now a member of the Russian parliament and has always denied involvement.

Ahead of the visit, in a letter to the Sunday Times, the prime minister was urged by four former foreign secretaries to challenge President Medvedev over a perceived failure to protect business against corruption and to address the Litvinenko issue.

The BBC's Daniel Sandford travelled to Russia's Kamchatka peninsula to speak to Andrei Lugovoi

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Suzuki seeks end to Volkswagen alliance

Suzuki struck an engine deal with Italian carmaker Fiat in June for its cars built in Hungary

Suzuki Motor is seeking an end to its partnership with Volkswagen, after the German carmaker accused Suzuki of breaking the terms of their agreement.

Suzuki will ask Volkswagen to sell its 19.9% stake in the firm, the company said in a statement.

The Japanese car company, in turn, will offload its 1.5% stake in Volkswagen.

Volkswagen argued that a deal between Suzuki and Fiat for diesel engines was a contractual breach. Suzuki has denied that the deal broke the agreement.

'Poor fit'

Volkswagen bought its 19.9% stake in Suzuki for 1.7bn Euros ($2.3bn; £1.4bn) in December 2009.

The partnership was supposed to be a way for Volkswagen to gain access to the Indian market for small cars, through Suzuki's leading position in the country.

The companies had also said they intended to co-operate on technology and expansion in emerging markets. However, no joint projects have begun almost two years into the deal.

Analysts said the alliance had failed to benefit either company.

"They entered into this agreement without any clear roadmap about what they were going to do" said Christopher Richter of CLSA Asia-Pacific Markets. "It was a poor fit right from the start."

Koji Endo of Advanced Research Japan added that contrasting corporate cultures and ideologies had also hurt the tie-up.

"One [Volkswagen] is a very big company trying to become the world's biggest car maker, the other [Suzuki] is a relatively small company trying to focus on key regional markets," Mr Endo told the BBC.

Analysts said that given Volkswagen's domination in the global markets, the German car maker had wanted to be a lead player in the partnership, a policy that had created more differences between the two companies.

"[Volkswagen] must have thought they will lead the project, but that hasn't gone down well with Suzuki," said Mr Endo.

Engine spat

Volkswagen's allegation that Suzuki violated the agreement between the two companies centres around Suzuki's relationship with Italian carmaker Fiat.

Suzuki had formed an alliance with Fiat in 2005 to make diesel engines in Asia.

In June, Suzuki decided to buy diesel engines from Fiat for cars built in Hungary, expanding the partnership between them.

Volkswagen had said it would give Suzuki several weeks to remedy the infringement and that it did not mean to end the partnership.

However, analysts said Suzuki had already incorporated the engines into their cars and to change the supplier would incur extra costs for the Japanese carmaker.

"It will take a fair bit of redesign of their cars in order to incorporate Volkswagen engines in those models," Christopher Richter of CLSA Asia-Pacific Markets told the BBC.

"It will require a larger investment on Suzuki's part," he added.

Mr Richter said that meant Suzuki would either have to lower its profits or pass on the added cost to the consumers, both of which were not viable options.

"When you look at the markets that Suzuki is catering to, pricing is one of the keys to success," Mr Richter said.

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