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G7 finance ministers called to action at crisis talks

International Monetary Fund chief Dominique Strauss-Kahn set the tone when he said advanced economies were in a “deep recession” ahead of the crisis talks in Rome, which kicked off with a working dinner on Friday.

“The world economy is close to recession. The advanced countries are in deep recession,” he told AFP.

“We don’t see any signal for the time being showing that 2009 could be better than we expect,” he told reporters earlier, but declined to describe the worldwide economic crisis as a depression.

The G7 finance ministers and central bank chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States were to kick off their main talks on Saturday, comparing notes on stimulus packages and seeking a consensus on the next steps, including possible new rules for global finance.

The United States urged “exceptional” measures as Treasury Secretary Timothy Geithner arrived for bilateral talks with several other top delegates from the seven leading industrialised nations.

“These extraordinary times call for exceptional and complementary measures by all,” Geithner’s delegation said in a statement at the start of the two-day gathering.

“The secretary will encourage his counterparts to take strong actions to address macroeconomic and financial sector challenges,” the statement said.

Geithner was set to discuss his vast US financial stabilization plan, which received a sceptical reaction in the United States and has prompted calls for details.

“There is still some need for more elaboration” on the US financial plan, Canada’s Finance Minister Jim Flaherty told reporters in Rome as ministers gathered for the G7 opening dinner on Friday evening.

“The first thing we need to do is make sure that our own financial systems in our countries are well regulated and therefore credible,” said Flaherty, who was due to meet with Geithner on Saturday.

“Then we need to have some sort of international cooperation where we have validation of that integrity of finance systems. That’s going to be a major topic of conversation here.”

More grim data emerged on Friday showing that the eurozone economy slumped by 1.5 percent in the fourth quarter of 2008. The European Union overall and several individual EU countries—including G7 host Italy—are also in recession.

“The growth figures we have been given today are not really a surprise but are underlining the seriousness of the situation,” said Jean-Claude Juncker, head of the Eurogroup of eurozone finance ministers, adding: “We have to live for a long period with the consequences of this crisis.”

As the ministers gathered, tens of thousands of people thronged a square in Rome under a sea of red flags to protest against the economic crisis. Fresh data on Friday showed Italy is deeper in recession than expected.

Ahead of the talks, several delegates voiced alarm over protectionism, which they fear may undermine efforts to ease the downturn.

Japanese Finance Minister Shoichi Nakagawa has warned that his G7 delegation would take a “resolute stance” against the “absolute evil” of protectionism—when countries take measures that favour their own economies at the expense of others.

Nakagawa said on Tuesday that the G7 nations were expected to discuss a sensitive “Buy American” clause in a pending US economic stimulus package.

Meanwhile, France has fiercely defended its plan to pump billions of euros (dollars) into its struggling auto sector against EU charges of protectionism.

The Italian finance ministry said in a statement that as president of the talks it would take a stand against protectionism, push for “a minimum basic set of rules” on world financial regulation and discuss “food security issues.”

World Bank president Robert Zoellick meanwhile told reporters here that the bank wants to persuade wealthy countries to set up a “vulnerability fund” to aid poor countries hit hard by the global financial crisis.

“I propose that developed countries agree to devote 0.7 percent of their stimulus packages to a vulnerability fund to support the most needy,” he said.

Japan signed an agreement Friday on terms of its commitment to lend up to 100 billion dollars to the International Monetary Fund to provide financial lifelines to crisis-hit emerging countries.