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WASHINGTON/PARIS (Reuters) - The head of the European Central Bank on Sunday pledged to do whatever it takes to restore confidence to rocky markets, as governments world-wide pour cash into banks and financial markets hit by the worse economic crisis since the Great Depression.
South Korea was the latest country to join efforts to help stabilize markets, while the Dutch government agreed to pump some 10 billion euros ($13 billion) into ING, the country's largest listed bank.
Governments are looking to put into place measures to shore up their economies and global growth as the crisis spreads throughout the world.
They have pledged about $3.2 trillion -- about equal to the economic output of Germany -- to guarantee bank deposits and bank-to-bank lending, and in some cases have taken stakes in banks that are awash in bad assets.
ING will gain two government representatives on its board who will have veto power over certain decisions, in return for the huge capital infusion.
The moves come on top of huge cash injections into money markets and coordinated interest rate cuts to offer some respite to money markets, which have been gripped by the fear of more bank failures after U.S. investment bank Lehman Brothers went bankrupt.
Still, with markets ready to open for what will likely be another week of neck-braking volatility, efforts to break open a liquidity lock-down appeared to be paying off in the form of tighter credit spreads.
ECB Governing Council members Erkki Liikanen of Finland and George Provopoulos of Greece said rates would fall as trust increases between banks following the measures taken by central banks and governments.
Top White House economic adviser Edward Lazear told CNN the first stages of that process are under way. "The numbers are going in the right direction," he said.
The crisis has raised fears in the West that many countries could enter recession this year and next.
Spain was the latest country to say it would fall into recession in 2009 if the global economy suffered that fate.
Japan, the world's second biggest economy, is set to slash its economic forecasts this month, Bank of Japan board member Atsushi Mizuno was quoted as saying.
In an interview with French media, ECB President Jean-Claude Trichet said Europe faces a "very important growth slowdown." Trichet put the blame on the price shock from months of high energy prices as well as the financial crisis.
Lazear, meanwhile, said that "parts" of the United States seem to be in recession based on jobless rates much higher than the national average.
For China, a country that will stave off the financial meltdown, no doubt with some bruises, the culprit was clear -- it was the West's fault. The official Xinhua news agency, in an opinion piece, blamed U.S. consumers for fueling the crisis with years of reckless spending that, once it ended, pulled the rug out from under the world economy.
Fears of the worst global slump since the 1930s have prompted some governments to change spending plans, others to dig deep to support the banking system, and many to advocate major reforms of the financial system.
Countries such as Iceland, Ukraine and Pakistan have asked for aid to prop up their economies.
Meanwhile, authorities in Seoul pledged $130 billion in state guarantees and capital injections.
"The government has decided to join in global coordinated efforts to stabilize financial markets and we'll continue to provide preemptive, decisive and sufficient measures to this end," Finance Minister Kang Man-soo told reporters.
Analysts welcomed the measures and looked for South Korea's central bank to trim interest rates as early as next month to prop up sagging domestic demand.
The head of the International Monetary Fund, Dominique Strauss-Kahn, welcomed South Korea's move as a way of bringing the policies in Asia's fourth largest economy more in line with those in developed countries.
In the Middle East, a newspaper said the United Arab Emirates would inject $19.06 billion into long-term bank deposits, and Oman's Chamber of Commerce and Industry called for a cash injection into banks for financing.
Late on Sunday, the German government set strict conditions for banks planning to tap into its 500 billion euro rescue package, including limits on compensation packages for top managers, according to a draft of the law seen by Reuters.
The draft foresees a recapitalization cap of 10 billion euros per bank and also sets a limit on the assumption of bank risks at 5 billion euros per bank.
In Britain, finance minister Alistair Darling said the government would have to borrow more to fund public spending to generate growth and employment.
"This is a time when you have to support the economy," he told the Sunday Telegraph. "We can allow borrowing to rise."
U.S. President George W. Bush said on Saturday he would host the first crisis summit soon after a November 4 presidential election, focused on the "principles of reform" needed to fix the financial system.
Trichet on Sunday promised "no taboos" when policy-makers roll up their sleeves and get to work on reforms and officials from several countries started to weigh in with ideas.
Japan, which chairs the Group of Eight, supported the summits, but its finance minister said they would be worthwhile only if they produced concrete results.
"If a summit were to be held, it should come up with a strong action plan or a decision," Finance Minister Shoichi Nakagawa said on Sunday.
Appearing in Quebec City, Canadian Prime Minister Steven Harper, said "national regulation alone" was insufficient to get to the root of the crisis and backed France's call for the creation of stronger international financial institutions.
Central bank presidents from Latin America's top six economies also met on Sunday in Santiago and said the region was well-prepared to take on growing financial market tumult.