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Japan, Canada unveil economic aid; Belgian govt falls

(Agencies)
Updated: 2008-12-22 11:25

LONDON/NEW YORK – Japan, Germany and Canada pledged new measures on Saturday to confront a financial crisis that has toppled banks, endangered the global auto industry and now played a part in the demise of Belgium's government.

A man walks past the Bank of Japan building in Tokyo December 16, 2008. [Agencies]

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Tokyo joined governments worldwide in pledging hundreds of billions of dollars of fiscal stimulus to lessen the impact of the crisis on their economies, many of which, Japan's included, are already in recession.

Its extra 4.79 trillion yen ($54 billion) budget, approved by the Cabinet on Saturday, will help finance two already-unveiled spending packages totaling 10 trillion yen.

In Canada, Prime Minister Stephen Harper unleashed C$4 billion ($3.3 billion) in emergency loans to the Canadian arms of Detroit's ailing automakers to keep them operating while they restructure their businesses. The lifeline comes just a day after the White House unveiled a $17.4 billion package to shore up Detroit's auto industry.

Harper also announced two new federal measures to support the overall industry -- one to benefit automotive suppliers and a second to help consumers get credit to buy cars.

"There are literally across the country hundreds of thousands, if not millions, of potentially affected families by the distress of this industry," Harper said.

German Chancellor Angela Merkel said her country would take "a further step" in January to boost its economy, having previously limited herself to saying government leaders would meet in the new year to review the situation.

In neighboring Belgium, King Albert consulted political leaders after the government collapsed following its botched attempt to bail out financial group Fortis.

Prime Minister Yves Leterme tendered his government's resignation on Friday after a report by the Supreme Court found signs of political meddling to sway a court ruling on the future of the bank, a victim of the credit crunch.

The king, who under the constitution must decide whether to accept the resignation, held successive talks with the heads of the five ruling-coalition parties until 2 a.m. on Saturday.

Consultations were to continue later in the day. Belgian media said there was little chance of Leterme staying on.

Leterme denied accusations he had sought to influence an appeal court that last week upheld a challenge by shareholders to a state-led carve-up of the bank, but acknowledged that the Supreme Court's findings made his position untenable.

The global economy's lifeblood -- credit -- remains severely constrained despite authorities spending trillions of dollars to keep money markets functioning, propping up banks and producing economic stimulus packages.

The boss of Britain's Barclays bank said it would be tough to get credit for up to two years yet.

"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months maybe, maybe 24 months," John Varley told BBC Television's Panorama program.

In her weekly podcast, Merkel said Berlin would do everything possible next year to keep the economy -- already in recession -- on a sound footing, after passing a stimulus package two weeks ago that was criticized as insufficient.

"We'll take a further step in January," she said, confirming for the first time concrete measures were on the way.

Analysts said Japan's measures could also be inadequate, given they are unlikely to be implemented until April.

"The problem is that it is taking more than five months for Prime Minister Aso to carry out his economic measures at a time when economic conditions are rapidly changing at home and abroad," said Takahide Kiuchi, economist at Nomura Securities.

Tokyo's move caps a dramatic week when it and the United States cut interest rates virtually to zero and Washington threw a $17.4 billion lifeline to its crippled auto firms.

But General Motors and Chrysler LLC are not out of the woods yet. Washington set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

A collapse of the Detroit Three automakers would put nearly 600,000 Canadians out of work within five years, most of them in Ontario, according to a provincial advisory panel report.

Under Canada's rescue plan, the federal government will provide C$2.7 billion in short-term loans and Ontario C$1.3 billion.

Harper said Canada would not allow a restructuring of the industry on US terms in a way that spark Canadian job loss.

"We may well have much smaller companies but they will not fail in my judgment," Harper said. "The question then for Canada is to ensure that as they are restructured that we retain our market share."