G7 to continue stimulus until economy on track

Filed on February 7, 2010

Finance ministers from leading industrialized nations vowed to continue epic deficit spending to bolster a fragile global recovery at the end of G7 talks in Canada’s far north.

Canadian Finance Minister Jim Flaherty told a closing press conference that he and his G7 counterparts “need to continue to deliver the stimulus to which we are mutually committed, and look ahead to exit strategies.”

Measures to shore up the global economy have proved costly, and while the world’s richest nations have promoted diverging economic and financial policies, the ministers agreed that investing in their economies remained vital in order to avoid backsliding.

“We have to make sure as not to undermine the global recovery,” said US Treasury Secretary Timothy Geithner.

“We’re absolutely committed to maintaining support for our economies until the recovery is firmly established,” echoed Alistair Darling, Britain’s Chancellor of the Exchequer.

“We achieved a lot in 2009,” he said. “The risk of 2010 is the world will forget just how serious the situation was and what more remains to be done.”

Concern over soaring public debts, which cast doubt on the recovery and caused market turmoil in recent days, was to top the agenda but ended up being pigeonholed at the talks, which presented no new directions for the Group of Seven industrialized nations.

The state of the public coffers in Spain and Portugal has been causing growing unease, with investors fearing a scenario similar to the budget crisis gripping Greece.

Greece has been placed under unprecedented EU surveillance as it attempts to implement austerity measures to slash its massive debt and a 12.7-percent public deficit, while Portugal’s deficit hit 9.3 percent last year, its highest since 1974.

European Central Bank chief Jean-Claude Trichet said Thursday the high deficit and debt in some countries was placing an “additional burden” on monetary policy and undermining the bloc’s stability and growth pact.

The G7 nations’ combined debt has reached a whopping 30 trillion dollars amid rabid spending to keep their economies afloat over the last year.

On Friday, the the euro tumbled to its lowest level in almost a year.

Speaking for his European guests, Flaherty said: “This is largely an issue to be managed not by the G7, but by the European Union which is how we left it.”

Darling later commented that Greece must “stick to its plan” to solve its debt woes and would be “backed” by the eurozone.

“We understand collectively that it’s in all our interests that countries return to good economic health as soon as they can,” he said.

The G7 ministers also agreed to eliminate Haiti’s debt, to “continue to work closely” on banking reforms and to push China to float its currency in line with a policy established in Istanbul in October.

The value of the Chinese yuan, which has effectively been pegged to the US dollar since mid-2008, has been a bone of contention between Beijing and its Western trading partners, who say it is kept low to boost exports and has led to a massive trade surplus with the West.

Japan’s Finance Minister Naoto Kan also said at the talks he feared a “bubble” was emerging in China, whose economy is poised to overtake Japan this year as the world’s second largest.

The G7 meeting had kicked off on Friday with dog sledding on Frobisher Bay and a “fireside chat” that harkened to its beginnings at a forest retreat south of Paris in 1975.

G7 delegates from Britain, Canada, France, Germany, Italy, Japan and the United States were joined by officials from the International Monetary Fund, the World Bank and the European Commission.

The intimate, albeit frosty setting helped foster direct diplomacy with no shortage of contentious issues on the table.

Flaherty congratulated the G7 for returning to its “roots,” bringing the world’s financial juggernauts together for “smaller,” “informal” and “frank” discussions after the G20, which includes emerging markets such as Brazil, China, India and Russia, took over in September as the world’s premier economic forum.

“Coming to the cold and to this beautiful city made the whole thing a lot warmer,” gushed French Economy Minister Christine Lagarde.

“This is a new start for the G7,” said Flaherty, whose boss Prime Minister Stephen Harper will host G7 leaders in June in the Canadian wilds, ahead of a G20 summit in Toronto.

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