A Global Strategy

The financial crisis can be ended only through coordinated action by governments.

AS STOCK markets around the world continued their sickening crash and credit markets remained frozen, President Bush tried to assure Americans yesterday that leaders of the world's largest economies were coming together to stabilize the global financial system. Meetings this weekend in Washington of finance ministers from the largest economies, the president said, would send "an unmistakable signal: We're in this together, and we'll come through this together."

The problem is that, so far at least, that message is not credible, as the eighth consecutive daily drop of the Dow Jones industrial average, completing the worst week in its history, vividly demonstrated. Investors weren't buying Mr. Bush's promise of "coordinated and effective" international action -- and, unfortunately, they had some reason for their doubts. The first meeting of the Group of Seven -- another is scheduled for today -- produced a statement promising not to allow bank failures and to unfreeze credit and money markets but failing to spell out specific measures for restoring stability.

Germany and France resisted a British plan for a joint commitment by the big economies to inject capital into banks and guarantee their loans. Peer Steinbrueck, the left-wing German finance minister who two weeks ago was gloating that "the crisis above all is an American problem," was busy promoting his own farfetched set of measures, including a ban on "speculative" short-selling and making bank managers personally responsible for their trades. France scheduled a separate European Union summit meeting for Sunday in Paris. Italy publicly condemned the G-7 statement for its weakness and threatened not to sign it.

For its part, the Bush administration has been responding with welcome pragmatism as it has become clear that its $700 billion plan for restoring confidence in the banks, approved by Congress just a week ago, is failing to stop the panic and loosen credit. Treasury Secretary Henry M. Paulson Jr. said yesterday the administration would embrace one of the British measures, which some U.S. economists have been urging for weeks. This would involve a direct infusion of funds into banks through the purchase of equity stakes. In contrast to the earlier plan to use most of the $700 billion to buy "toxic" mortgage securities, the new strategy could more directly address the problem of the banks' solvency, and it might have a quicker effect.

The Federal Reserve Board already has a mechanism for jump-starting inter-bank lending. But at this point there is a major advantage to a closely coordinated international approach. Better that Britain and the United States act together than separately, but what's really needed is joint action that extends across the major markets. Though yesterday's G-7 statement was an attempt to define common steps, it's not clear that it will be enough to restore confidence in the markets. Too many governments, in Europe and elsewhere, have wasted precious time denying the crisis. Now they've helped make it worse by taking different and competing measures to save their own national institutions. They may have only a few days left to get it right. They cannot afford to squander this weekend's meetings.