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 investigate 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 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 begin analyzing potential strategies to assist with the process.
However, ministers from the U.S., Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union also stressed their commitment to provide any more stimulus the economy might need — as long as it does not threaten to spur inflation or push state budgets further into deficit.
“We must remain vigilant to ensure that consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals,” they said in the statement.
“We will continue working with others in taking the necessary steps to put the global economy on a strong, stable and sustainable growth path, including by continuing to provide macroeconomic stimulus consistent with price stability and medium-term fiscal sustainability,” they added.
The ministers also agreed on the need for a set of common principles and standards for propriety, integrity and transparency regarding the conduct of 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.
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.
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.
The economic backdrop to the meeting was significantly different from the last time the G-8 ministers gathered as part of the wider Group of 20 in England in April.
Financial markets have rallied strongly over the last three months largely on better-than-expected economic data, as well as hopes that the financial sector is stabilizing. Ten of the largest U.S. banks were ruled strong enough to repay $68 billion in government bailout money. U.S. data out last week showed a rise in retail sales and lower unemployment claims, as well as increasing global demand for energy.
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.
The somewhat conflicting signs had left ministers divided over the importance of exit strategies, with the U.S., Britain and France warning against any premature steps that could hurt the fledgling economic recovery.
Germany, meanwhile, 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.
There was no mention in the communique of public stress tests on major banks — U.S. Treasury Secretary Timothy 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.
