LONDON (Reuters) – Japan and Europe sought on Friday to prop up their faltering economies after a $14 billion rescue package for America's top auto makers collapsed, deepening the worst financial crisis in 80 years.
In a further blow to recovery prospects, trade sources said the head of the World Trade Organisation had decided there was not enough consensus among big powers to call ministerial talks on a global trade deal before the end of this year.
Leaders of the G20 rich and emerging nations called last month for an outline Doha deal by the end of 2008 to help counter the financial crisis by warding off protectionism. An announcement by WTO chief Pascal Lamy was expected on Friday.
The U.S. bailout's failure in late-night Senate talks will raise fears of an industry collapse that would jeopardize many jobs. The companies say one in 10 U.S. jobs are tied to the auto sector, totaling several million.
Japan's government said it would expand the size of funds set aside to recapitalize banks to 12 trillion yen ($131.1 billion) from 2 trillion yen and also announced a 1 trillion yen package to secure jobs.
It was not clear how much of the money was new.
Tokyo has already announced a package of economic measures worth 27 trillion yen ($295 billion), which included 5 trillion yen in new spending and featured payouts to families, tax breaks on mortgages and relief for small firms.
"We are working at a very high speed. The size of the economic measures will be worked out until the last minute," Finance Minister Shoichi Nakagawa told a news conference just before the new measures were unveiled.
EU MASKS DIFFERENCES
European Union leaders sealed a 200-billion-euro ($264 billion) pact to revive the bloc's economy, which had exposed deep differences between Britain and Germany.
Skeptics say the plan rests largely on national government packages already announced. But leaders will be relieved after an unusually public spat with Berlin accusing London of 'tossing around billions', including a value-added tax cut. In wording which appeared to reflect the reluctance of Germany, the text noted the possibility of reducing VAT on labor-intensive services only in those states that wished to.
British Foreign Secretary David Miliband said there was no rift but added that German domestic politics were at play.
"What you have got is clearly internal politics in Germany ... you have got elections next year," he told BBC Radio.
The euro zone clearly needs a boost -- data on Friday showed industrial output dived 5.3 percent year-on-year in October.
"The euro zone recession is deepening," said Howard Archer, Chief European Economist at IHS Global Insight.
U.S. PLAN STALLED, STOCKS DIVE
The U.S. Senate's refusal overnight to back a rescue plan for the auto sector is set to exacerbate a crisis that has spiraled from a U.S. housing collapse through frozen money markets to bank failures and has now pushed much of the world into a recession which many experts say will be long and painful.
General Motors Corp and Chrysler LLC had sought billions of dollars in immediate aid to avert collapse, while Ford Motor Co wanted a hefty line of credit.
"It's going to be a very, very bad Christmas for a lot of people," said U.S. Senate Majority Leader Harry Reid, a Democrat who favored the bailout. "I dread looking at Wall Street tomorrow. It's not going to be a pretty sight."
Tokyo's Nikkei average and stocks elsewhere in Asia fell 5 percent and more after talks failed.
Auto stocks went into freefall with Toyota, Nissan and others shedding over 10 percent.
European shares followed suit, dropping 4.5 percent.
GM, Ford and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at suppliers could hang on their survival.
BANK PAIN
Banks, who racked up big losses on securities tied to risky U.S. mortgages, continue to suffer -- a fact that prevents them lending to each other and oiling global economic wheels.
Bank of America plans to cut up to 35,000 jobs over three years and Britain's HBOS, due to be taken over by Lloyds TSB, said bad debts and other charges leapt by two thirds in the last two months to 8 billion pounds.
Even once fast-growing China has not been able to avoid the wreckage of a crisis born of a U.S. housing market meltdown.
Beijing launched a 4-trillion yuan ($586-billion) stimulus plan on November 9 and followed up on Wednesday with a pledge after a strategy meeting to ramp up public spending and cut taxes.
Senior officials were confident of hitting an 8 percent growth target in 2009 -- the rate deemed necessary to create enough jobs for the millions joining the workforce each year.
Others disagree.
The World Bank is forecasting 7.5 percent growth next year; Goldman Sachs expects a rate of just 6.0 percent.
South Korea agreed new currency swap deals with Japan and China worth nearly $50 billion, a day before leaders of the three east Asian countries hold a summit in Japan.
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