WORLD LEADERS have arrived in Washington for crisis talks on the global economy as the euro zone officially slipped into recession and US retail sales fell by a record level.
As the leaders of 19 countries and the EU prepared for the two-day summit of the so-called G20, officials played down the prospect of a major breakthrough but suggested that governments could agree to introduce stimulus packages in an attempt to get their economies moving.
US president George Bush is hosting the meeting. Because president-elect Barack Obama will not attend, major reform of the international financial system will probably have to wait until next January when he takes office.
European governments want more international regulation of financial markets and greater cross-border supervision of banks, but Mr Bush has warned against moving too swiftly to introduce more regulation. "We must recognise that government intervention is not a cure-all," the president will say in his weekly radio address today.
"While reforms in the financial sector are essential, the long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people."
German chancellor Angela Merkel has expressed surprise at warnings against too much regulation of financial markets. "I must say I am somewhat surprised that these warning calls are already coming so shortly after the crisis broke out," she said.
The G20 leaders will consider common standards for accounting and creating centralised clearing houses for financial instruments such as credit default swaps, and look at proposals to give developing nations more power within the International Monetary Fund and World Bank. Most agree that governments will have to pump major sums into their economies to avoid further decline.
The euro zone has officially slipped into recession after EU figures showed the economy shrank by 0.2 per cent in the third quarter, after a 0.2 per cent contraction in the previous quarter from April to June.
In the US, the commerce department reported yesterday that retail sales fell by 2.8 per cent last month, the biggest drop on record, surpassing the 2.65 per cent drop that followed the September 2001 terrorist attacks. The October sales decline was led by a huge fall in car purchases, but sales of all types of products suffered as consumers cut back sharply on spending.
Chinese industrial production increased last month at the slowest pace in seven years, and the Organisation for Economic Co-operation and Development (OECD) predicted that developed world economies would shrink next year by 0.3 per cent.