Global central banks reacted this morning to European banks that appear to be sharply curtailing lending to each other, including in overnight loans. (S&P also downgraded wide range of developed economy big banks). The central banks acting in coordinated fashion - usually an indication of growing risk and/or grave disruption/dislocation - are adding more liquidity. The last time that central banks acted in such coordinated fashion was immediately after the crisis struck in early August this year in response to Eurozone sovereign debt concerns and the US downgrade. Read- “Coordinated G-7 Action Signals Fear & Drama” - diplomaticallyincorrect.org/films/blog_post/coordinated-g-7-action-signals-fear-drama-in-financial-markets-by-ambassador-mo/33414 Eurozone Debt Crisis Far from Resolved: As we also reported earlier, European banks have been dramatically shedding assets, and in particular sovereign debt of Eurozone states. Read: - “European Banks Shed Sovereign Debt” - diplomaticallyincorrect.org/films/blog_post/european-banks-shed-sovereign-debt-by-ambassador-mo/41642. Italy’s benchmark interest rate is at or around new highs and critically above 7% - above which is generally viewed as not sustainable. China Eases Money - Nimble Steering or Asleep at the Wheel?: Equity markets globally though rallied over the last couple of days after a period of sharp declines. Speculated IMF action to rescue Italy has proven to be overstated. Rather, the gains may reflect a bounce and anticipation that China would start easing rates. In fact, overnight China did start to ease money supply into the system (by reducing reserve requirements). Recent data has indicated potential slowdown in China and broader Asia. With Europe a key market and the continent as a whole swinging on the verge of recession, China was anticipated to take such action for both domestic and global market concerns. There is even a broader feeling that the globe is embarking upon a monetary easing campaign and that fiscal austerity and cutbacks will have to move to the backburner. This U-turn is noteworthy for indication of the potholes on the economic road that are now consciously being avoided by more nimble steering rather than asleep at the wheel behavior that until recently prevailed.Certainly speculative activity in commodities such as the petroleum and copper market indicates anticipated pick-up in economic recovery. Personally though I think the prospect is highly uncertain and diverse depending on region, industry and consumer class – little has changed from our October 17, 2011 article “Best of Times-Worst of Times” - diplomaticallyincorrect.org/films/blog_post/global-recession-best-of-times-worst-of-times-by-ambassador-mo/36338. The risk of contagion or seizing up of global financial system as it did in the latter part of 2008 after the Lehman Brothers failure is less. However, the prospects remain dim for developed economies, particularly Europe, and US as well as European banks. These banks were just downgraded across the board by Standard & Poor’s. The “coordinated action” of central banks confirmed that there was reason to fear, even as it perhaps may provide relief.There has been no "Big Bazooka" yet from Germany, or the ECB or even IMF to help resolve the crisis, and most critically it is uncertain whether such mechanism is still possible after repeated missed opportunities.The EFSF - European Financial Stability Fund - as we have already alerted - is proving a bit of dud. My general view is that prospects have improved a bit but still are more tending toward higher risk and lower growth – a view shared by the Organization for Economic Cooperation & Development (OECD) in its latest report and most ably explained in this Film Report from the OECD: “Economic Risks Downside” - diplomaticallyincorrect.org/films/movie/economic-risks-downside-oecd/29294 By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect” Twitter – Follow us at DiplomaticallyX Related Reports at “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis