'Platitudes' prompt backlash fears

FEARS were growing last night of a fresh market backlash tomorrow against Friday's deal between the G7 countries as analysts warned that it contained little but "platitudes".

Finance ministers from the seven nations agreed on Friday to take "decisive action" to prevent the worst case scenario of a wholesale nationalisation of the world's major banks.

But financial experts said last night that the deal lacked enough detail, amid warnings that the other nations – including Germany, France and Japan – were failing to follow Britain's lead in offering firm backing for the banks.

US president George Bush interrupted the talks yesterday, which were taking place at the White House, arguing that governments "must ensure the actions of one country do not contradict or undermine the actions of another". He added: "In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together."

Bush was speaking after his Treasury secretary Henry Paulson unveiled plans to buy stakes in American banks, a move seen as a key step to ensuring their survival.

But none of the G7 finance ministers said they would be endorsing the British plan to guarantee lending between banks as a way of getting credit to flow again. The refusal of banks to loan to one another – for fear they will never get their money back – is at the heart of the credit crunch.

Despite the initial warm words from the G7, analysts yesterday said they were unimpressed with the lack of detail.

Justin Urquhart Stewart of Seven Investment Management said: "Warm platitudes don't make a market.

"It's very nice of them to come up with broad generalisations of things we already know, but that doesn't solve the immediate issue. The immediate issue is the banking crisis. The way to go about it is to look at the issues. The banking system relies on trust and confidence."

Other countries needed to follow the British plan, he said. "We've lit the touch paper, we can hear the fuse going, but we can't quite see if the dynamite is too wet or if there is enough of it. We must fix the banking system. If the banking system doesn't work then capitalism doesn't work."

David Buick, of Cantor Index, added: "The situation has become pretty desperate. What we really need to see is how unanimous they are on certain things. This is no time for negative thought; these bail-outs have to happen."

Similar doubts surrounding the meeting of EU leaders last weekend, when no firm agreements were reached, led to an plunge in the markets on Monday. The falls in the course of a week wiped £2.7 trillion off the value of global shares.

Gordon Brown will travel to Paris for crisis talks today as EU leaders consider how to react to deepening global financial turmoil. Amid signs that eurozone countries are moving towards a British-style rescue plan for banks, the Prime Minister will meet French president Nicolas Sarkozy and other senior figures.

Sarkozy has called an emergency summit of the 15 states signed up to the single currency today – despite the fact that EU leaders are already due to gather in Brussels on Wednesday.

The five-point plan signed by the G7 commits the countries to protect major banks and prevent their failure. They also committed to working to get credit flowing more freely again, support the efforts of banks to raise money from both public and private sources, safeguard bank depositors and revive the battered mortgage financing market.

Aside from the details on bank stock purchases that Paulson offered, the finance officials did not provide specifics beyond their five-point action plan in a one-page statement.

In the US, economists were unconvinced the plan would stop a further run on shares. "The markets will wait and see whether all of these policy steps will make a difference," said Mark Zandi, chief economist at Moody's Economy.com.

"Investors are panicked. They are not going to stop selling until they are convinced that these steps will work."

In his address yesterday, Bush sought to reassure Americans. "We are a prosperous nation with immense resources and a wide range of tools at our disposal," he said. "We can solve this crisis and we will."

Five point plan

The G7 has agreed on five emergency measures to rescue the world's financial institutions:

1 Take decisive action and use all available tools to support important financial institutions and prevent their failure

2 Take all steps to unfreeze credit and money markets

3 Ensure banks can raise capital via public and private sources

4 Ensure national deposit guarantee programmes are robust

5 Take action, where appropriate, to restart the "secondary markets" for mortgages and other assets