Is there trouble on the horizon?

THE world's top central bankers began arriving in Australia Feb 6, 2010 as renewed fears about the strength of the global economic recovery gripped world share markets. Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed.The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.
Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.Australia's ASX 200 slumped 2.4 per cent, to its lowest close since November 5, echoing a sharp fall on Wall Street.Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night."This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel."Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''
It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.
The outlook for global growth is likely to be a key theme of the high level central bank talks.
The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night. On the Australian market 31 billion was wiped off as the all ords plunged by
2 1/2%
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EUROPE'S top central banker Jean-Claude Trichet yesterday cut short his visit to Australia as fears intensified in global bond markets that Greece, Portugal and Spain would default on sovereign debt this year and trigger a new financial crisis. Mr Trichet, the president of the European Central Bank, left a meeting of central bank governors in Sydney a day early to attend an emergency summit of European Union leaders later this week. His sudden departure came as risk premiums continued to blow out on bonds issued by debt-laden European governments such as Greece, Portugal, Italy and Britain. Mr Trichet arrived in Sydney at the weekend where he had high level talks with the governor of the People's Bank of China, Dr Zhou Xiaochuan.
European financial leaders are agitating for China to invest in bonds issued by troubled European countries in an effort to head off a regional financial crisis in the region.Rumours last week that China was set to invest in southern European sovereign debt triggered a rally in Greek bonds, but this was short-lived after the speculation was rejected by officials. Without support from China it is doubtful whether Greece will be able to refinance 54 billion ($A79 billion) of debt due this year.Global equity and money markets have come under extreme pressure in the past two weeks as worries of a second wave financial crisis have gripped traders.The Dow Jones index slumped almost 8 per cent since January 19, while falls on European markets have been more severe.Australia's $65 billion Future Fund yesterday moved to allay concerns that it had significant exposure to Euro-zone bonds after its general manager Paul Costello appeared before the Senate estimates committee.Mr Costello said the Future Fund was not holding any bonds issued by countries such as Spain and Portugal.
The rising risk of government defaults is believed to have figured prominently in the deliberations of central bankers in Sydney on Sunday and Monday.But the outcomes of those high-powered meetings have been kept secret by participants, which included Mr Trichet and representatives from 24 central banks.One of the key players in the meetings was the general manager of the Bank for International Settlements, Jaime Caruana, who is scheduled to speak in Melbourne today.The BIS is developing a new regulatory framework for the global banking system, which also covers new remuneration principles on executive pay.In a speech given yesterday at a symposium organised by the Reserve Bank of Australia, Mr Caruana said that some central banks were not properly equipped to maintain financial stability in their banking systems.