IE 11 is not supported. For an optimal experience visit our site on another browser.

G-8 nations get ready for economic recovery

The Group of Eight industrialized nations are preparing for an economic recovery, acknowledging "signs of stabilization" and agreeing to find ways to unwind stimulus packages.
/ Source: The Associated Press

The Group of Eight industrialized nations have begun preparing for an economic recovery, acknowledging on Saturday "signs of stabilization in our economies" and agreeing to ask the International Monetary Fund to study ways to unwind hefty stimulus packages.

In a communique released at the end of a two-day meeting here, the group's finance officials said that although the global economy is still weak, so-called exit strategies from monetary and fiscal stimulus measures — like tax cuts and lower interest rates — were "essential to promote a sustainable recovery over the long term."

The ministers said they had asked the IMF to analyze potential strategies to assist with the process.

However, ministers from the U.S., Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union added that the "situation remains uncertain and significant risks remain to economic and financial stability" and stressed their commitment to provide any more stimulus the economy might need.

"These early signs of improvement are encouraging, but the global economy is still operating well below potential and we still face acute challenges," U.S. Treasury Secretary Timothy Geithner said after the meeting.

The talks here were designed to set an agenda for a meeting of G-8 heads of state next month in L'Aquila in central Italy.

Financial markets have rallied over the past three months on better-than-expected economic data, but there are worries in the U.S. and Britain that continental Europe has not done enough to deal with the recession. And the World Bank forecast on Thursday the global economy will contract 3.0 percent this year, far worse than a previous estimate of minus 1.75 percent.

'Got to work this through'
British Treasury chief Alistair Darling downplayed the urgency of exit strategies in the current economic climate, noting that some countries are only just beginning the process of sorting out problems in the banking sector.

"One thing we are absolutely clear about is we are not there yet," Darling told reporters. "No-one's talking about exiting now, this is some way down the track. We've still got to work this through."

Germany has been a particularly strong critic of the lower interest rates, tax cuts and measures to boost the money supply that have been employed by countries including Britain and the United States, warning they are potentially inflationary and deficit-building.

Geithner said that measures to repair the credit markets and the financial system "are designed to be temporary and quickly reversible."

Italian Finance Minister Giulio Tremonti said that exit strategies were fundamental to creating a climate of trust and there was a general consensus that they were needed, but he added that designing a program would require compromises among the G-8 bloc.

"We won't all find agreement but we will need to have political compromises," Tremonti said.

Spelling out standards
The communique also spelled out the need for a set of common principles and standards for propriety, integrity and transparency in international business and finance.

They agreed on the objectives of a strategy, dubbed the Lecce Framework, to identify and fill regulatory gaps and foster the international consensus needed to rapidly implement new rules.

Geithner said that proposals on regulatory reform due to be outlined in the United States next week would include several international measures. The U.S. will call on foreign banking regulators to develop proposals by the end of this year to find ways to quickly resolve failures of cross-border financial firms, he said.

As the ministers met in a medieval castle in Lecce, about a thousand anti-globalization protesters marched peacefully through the historic center of the southern Italian town in protest of the meeting, shouting slogans including "G-8, economy, lies," and carrying banners urging debt cancellation.

There was no mention in the communique of public stress tests on major banks — Geithner had said earlier this week that he would explain the rigorous public stress tests conducted on 19 of America's biggest banks to his counterparts.

Britain has conducted the tests, but released less detail on the results than the United States, while Germany has argued they could undermine the fledgling economic confidence.