Shaky recovery hopes dominate G8 finance talks

By AFP

July 15, 2010 Updated Jun 14, 2009 at 9:41 PM CDT

Uncertain prospects for a global economic recovery gripped talks between G8 finance ministers on Saturday in Italy as rifts emerged on testing the stability of Europe's crisis-hit banks.

"We shouldn't get carried away with the recovery while we're still relaunching, stimulating and ensuring that our recovery plans work," French Finance Minister Christine Lagarde told reporters late Friday at the talks.

"We must be very prudent because the shock was extremely brutal," she said.

Germany's Peer Steinbrueck said the meeting would struggle to find support for "exit strategies" -- cuts in spending and deficits once growth restarts.

"The danger of short-term deflation is minor compared to the risk of long-term inflation," Steinbrueck was quoted by the Financial Times as saying.

Lagarde also said European ministers would tell US Treasury Secretary Timothy Geithner that they are not yet ready to carry out US-style "stress tests" to check on the capital requirements of individual banks.

Britain has backed the tests and warned its recovery could be held back by other European countries failing to clean up their banks. But Germany has said the checks could undermine confidence in the stability of its banks.

"If there is a problem it doesn?t get any better by walking around it and hoping it will go away," British finance minister Alistair Darling told the Financial Times ahead of the two-day G8 talks in Lecce in southern Italy.

"Because if you don't sort that problem you'll never sort out the economy."

Signs have emerged in recent weeks of a modest start to a recovery in countries such as Britain, France, Germany, Italy and the United States.

That in turn has sparked debate over "exit strategies," or how governments will rein in spending and cut massive debts incurred during the crisis.

Some warn however that it may be too early to declare the worst over while output in many parts of the world continues to decline and unemployment soars.

"It's too soon to talk about" exit strategies, Youssef Boutros-Ghali, head of the IMF's international monetary and financial committee, told reporters.

"Let's make sure that we get what we did right," he added.

But Canadian Finance Minister James Flaherty said: "There are relatively small but encouraging signs of a return to stability."

"I think what we need to work on is an exit strategy. There's been massive government involvement but now we need to plan, as growth returns, to withdraw from the private sector," he said.

"I don't think any of us want to have government-run economies," he added.

The International Monetary Fund has upped its forecast for global growth in 2010 to 2.4 percent, but the World Bank has said the recession in 2009 will be worse than expected and the WTO has said there are no signs of a recovery yet.

US treasury secretary Geithner earlier said he would urge fellow finance chiefs at the G8 meeting to stay the course on economic stimulus spending and financial reforms despite signs the global recession may be easing.

The talks include ministers from all the Group of Eight (G8) countries -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- and are set to finish at 1300 GMT on Saturday with a joint declaration.

A few thousand people were expected to take part in a march to protest against the G8 meeting on Saturday amid a security lockdown in the picturesque city of Lecce, where hundreds of police officers could be seen in the streets.

To submit a comment on this article, your email address is required. We respect your privacy and your email will not be visible to others nor will it be added to any email lists.