Europe in recession as G20 meets in US

Washington: The European Union (EU) is desperately looking for solutions after it officially fell into recession on Friday.

The 15-country EU is facing one of its worst crisis in the recent times and the recession has taken a toll on the eurozone, as the gross domestic product figures fell by 0.2 per cent in the third quarter. This is the first time that the eurozone is in recession in its 10-year-old history.

Germany, Europe's biggest economy, had already announced that it had dropped into recession territory.

With the United Kingdom expected to follow suit, France is the only one of Europe's biggest three economies to expand in the third quarter and that too by a meagre 0.1 per cent in the period between June and September.

Although the UK though is not a part of the eurozone but there is bad news from the British banking sector.

According to media reports The Royal Bank of Scotland announced plans to slash around 3,000 jobs worldwide over the next several weeks to reduce costs. The spreading recession is likely to top the agenda during Saturday's meeting of the Group of 20 (G20) in Washington DC.

The economic slowdown across the world has been triggered by the US sub-prime crisis where thousands have been given the pink slip. The US has also recorded the biggest retail sales dip on record.

Leaders of the G20 said they were working on plans to counter the growing economic threat and prevent future crises, but big breakthroughs were not expected at their meeting in the US capital, given the absence of US president-elect Barack Obama, whose involvement will be key to any global initiatives.

The United States is probably already in recession, most economists agree, but official data showing that will not come out until January.

"Frankly, we at Dow are looking at an '09 that looks like a pretty protracted global recession, probably going into 2010," Andrew Liveris, the chief executive of Dow Chemical Co, the largest US chemical maker, told Reuters.

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Signs for the US economy worsened on Friday. Retail sales fell 2.8 per cent in October, according to government data, the biggest decline since comparable numbers were first collected in 1992.

Citigroup Inc, one of the hardest-hit financial companies, will soon announce job cuts of up to 10 per cent of its staff, according to a source familiar with the matter.

That could affect more than 30,000 employees. Sun Microsystems Inc said it would slash up to 6,000 jobs, or 18 per cent of its workforce, as it looks to save money while demand wanes for its high-end business computers.

Fidelity Investments, the world's biggest mutual fund company, told employees it will cut a further 1,700 jobs on top of 1,300 already announced.

Freddie Mac, the second-largest provider of US home loan financing, reported a $25 billion quarterly loss as the housing slump worsened, forcing it to draw on a $100 billion Treasury Department lifeline.

Meanwhile, approval of a bailout for the big US automakers was in doubt, increasing the possibility of a wave of mass layoffs at General Motors Corp, Ford Motor Co and Chrysler LLC.

The US Senate plans on Monday to take up a bill that would provide emergency aid to automakers, but it remained unclear if there was enough support for it to pass.

The only glimmer of optimism was that US consumer sentiment rose slightly, helped by lower gasoline prices.

Confidence might be raised further by moves to reduce skyrocketing home foreclosures by modifying borrowers' loans, but a proposal along those lines by the Federal Deposit Insurance Corp met opposition from the US Treasury and the White House.

More help is on the way for ailing banks.

Friday was the deadline for public banks to apply for funds under a US capital injection program that is part of the $700 billion bailout plan passed by Congress last month.

Treasury expects to approve federal funds for another 20 banks, an official told a US House of Representatives committee.

US stocks closed lower, the Dow losing nearly 4 per cent after flirting briefly with positive territory following Thursday's strong gains and a winning session in European and Asian stock markets.

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Oil fell below $57 a barrel.

US Federal Reserve Chairman Ben Bernanke said central banks worldwide were ready to do more to support faltering growth and European Central Bank policy-makers signaled further interest-rate cuts were likely.

"Policy-makers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," Bernanke said at an ECB conference in Frankfurt.

With Europe as well as parts of Asia and North America suffering, leaders of the G20 nations opened a two-day summit with a dinner at the White House in a search for ways to resolve the crisis, started by a US housing market crash, and avoid another one.

But agreement among the G20, which represents 85 per cent of the world's economy and two-thirds of its population, may be elusive amid divisions over whether more regulation of markets can protect consumers, savers and companies from the fallout.

The administration of US President George W. Bush says there should be no return to greater state control of financial markets. Much of Europe says that without greater regulation, a repeat of the last year's turmoil is inevitable.

(With inputs from Reuters)