PARIS — At the end of Europe's worst financial week in decades, after repeated and failed attempts to halt the tailspin of global markets and restore trust in economic leaders, some European economists are throwing up their hands in frustration.
"What to do to restore confidence is something you should perhaps ask a psychologist," Jean-Christophe Caffet, an analyst at France's Natixis Bank, said Friday. "The key driver here is confidence, and . . . we don't have a way to bring confidence."
As finance leaders meet this weekend in Washington to try once again to develop a unified strategy, there are increasing calls for bold new steps to turn things around.
"The problem at the moment is central banks have been a bit behind the curve," said George Buckley, the chief U.K. economist for Deutsche Bank. "They haven't been in front of the markets, and it feels like they are always playing catch-up."
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Panic sell-offs dominated European markets on Friday after a collapse Thursday on Wall Street. Following another tumble in the Asian markets, Europe followed suit.
The FTSE 100 in London was off more than 1,000 points for the week, a 21 percent drop that was the worst since 1987. France's CAC-40 fell by 7.7 percent on Friday. Germany's DAX ended the day down about 8.1 percent. Trading in Vienna was temporarily halted after the stock exchange dropped 10 percent when trading began early Friday.
"There is no safe haven," Natixis economist Evariste Lefeuvre told the BBC.
However, an increasing sense of urgency hasn't been followed by concrete new steps.
French Finance Minister Christine Lagarde told reporters that a "harmonized approach" was unlikely to emerge from the financial leaders of the Group of Seven industrial nations.
"You cannot apply the same method to different market situations," said Lagarde, who's taking part in the sessions over the weekend.
Without dramatic new steps, some worry that the crisis will only deepen.
"One of the biggest lessons of the Great Depression is that countries only acted in self-interest, and if countries act in self-interest the chance of failure is much higher," said Jon Danielsson, an economist at the London School of Economics. "There is an increasing realization that the way out is for the large industrial nations to act with a single voice."
While the British proposal to effectively nationalize some of its banks is now gaining credibility in the U.S. and around the world, economists say more needs to be done.
As G-7 leaders gathered in Washington, an international group of economists affiliated with the Center for Economic Policy Research in London called for "a fundamental rethinking of the financial architecture."
While the 18 economists suggested different strategies, they called on countries to embrace guarantees, not just on bank deposits, but also on bank loans. That might help jump start bank-to-bank loans that have been at the heart of the instability.
Some analysts are also calling on economic leaders to further cut interest rates.
So far, world leaders have demonstrated little to instill confidence that they can work together.
England enraged Iceland this week by using anti-terrorism laws to freeze assets of Icelandic banks in Britain. In return, Iceland has frozen billions of dollars in British savings tied up in faltering Icelandic banks.
British Prime Minister Gordon Brown called the move "completely unacceptable" and dispatched a high-level delegation to Iceland, which has nationalized its three biggest financial institutions in an attempt to avert national bankruptcy.
"This diplomatic war with another NATO member is a sign of the instability," said Danielsson of the London School of Economics.
On Friday, Italian Prime Minister Silvio Berlusconi told reporters that leaders were considering suspending world markets while leaders rewrote financial rules, according to Reuters. But the White House quickly knocked down the idea, and Berlusconi eventually backtracked.
Danielsson said the continued divisions are undermining confidence.
"Both for economic and also for psychological reasons if they are seen as squabbling that creates uncertainty," he said. "And uncertainty is the main problem."
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