No 10 admits to new credit crunch as central banks act

DOWNING STREET has admitted we have entered a new credit crunch after the world's major central banks acted in concert to provide money to the creaking financial system and a European Commissioner said there were 10 days to save the euro.

The Bank of England, the Federal Reserve, European Central Bank, and the national banks of Canada, Switzerland and Japan acted after rumours that a big European bank had been frozen out of credit markets. The move makes it 0.5 per cent cheaper to borrow US dollars and is expected to ease difficulties in obtaining credit. China acted independently to ease its own credit concerns.

A Downing Street spokesman told The Daily Telegraph: "Clearly there is a very serious situation in the financial markets at this time. We are experiencing a credit crunch and that central bank action is about trying to mitigate the effects of that credit crunch. They are ensuring they have the capacity to take action."

The effect of the action was to boost markets across the world. Yesterday, Wall Street's Dow Jones index jumped 4.2 per cent, while in London the FTSE-100 was up three per cent and the German Dax soared five per cent. Today, Japan's Nikkei index was up 1.9 per cent, while South Korea's Kospi rose 3.7 per cent.

The credit easing may have only a temporary effect, however. Sir Howard Davies, the former director of the London School of Economics, told Radio 4's Today programme that the central banks' action "will oil the wheels for a little while" but expressed surprise at the "market euphoria".

The pressure is now on EU leaders to get their act together and follow the central banks' decisive action with a plan of their own to finally end the eurozone debt crisis at a summit on December 9.

Olli Rehn, the European Commissioner for Economic and Financial Affairs, said: "We are now entering the critical period of 10 days to complete and conclude the crisis response of the EU." ·