Joint move by central banks gives lift to shares

The surprise move by the United States Federal Reserve, the European Central Bank, the Bank of Japan and the central banks of Britain, Canada and Switzerland brought back memories of the action to steady global markets that was taken during the 2008 financial crisis.

The euro and European shares surged on the news, which came after euro zone finance ministers agreed to increase the firepower of their bailout fund.

They also acknowledged they may have to turn to the International Monetary Fund for more help.

In a related move, Italy’s central bank started emergency cash tenders for banks which have been squeezed hard in recent weeks as Rome’s borrowing costs have soared towards eight per cent, a level seen as unaffordable in the long term.

Analysts have been concerned that the euro zone’s sovereign debt crisis could lead to financial disaster.

Investors are leaving the euro zone bond market, European banks are dumping government debt and south European banks are bleeding deposits.

There have been fears that a Europe-wide recession is looming, which has led to doubts about the survival of the single currency.

Euro zone leaders face a crunch meeting on December 9 at a Brussels summit. The meeting is seen by some analysts as “a make-or-break moment” for the euro.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” Economic and Monetary Affairs Commissioner Olli Rehn said as EU finance ministers met.

Finance ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.

“We are now looking at a true financial crisis, that is a broad-based disruption in financial markets,” Christian Noyer, France’s central bank governor and a governing council member of the European Central Bank, told a conference in Singapore.

Most analysts agree that only more radical measures, such as massive intervention by the ECB to buy government bonds directly or indirectly, can ease the sovereign debt crisis.