G7 officials brush off calls for more unity
Saturday, September 10, 2011
MARSEILLE, France (AP) — The financial leaders of the world's most developed economies ignored calls for a stronger unified response to Europe's debt crisis, insisting Friday that each country should tread its own path back to growth amid concerns of a global slowdown.
The so-called Group of Seven economies — the U.S., Canada, Japan, the U.K., France, Italy and Germany — are all facing a similar challenge. The recovery that began a little over a year ago is already running out of steam, but governments' ability to boost growth is hampered after the financial crisis pushed up their deficits.
Earlier in the day, Christine Lagarde, the head of the International Monetary Fund, had urged policymakers to take concerted action quickly. "The key ... is for policymakers to act with conviction and urgency in tackling today's challenges, while at the same time being nimble, should circumstances change," Lagarde said in London before traveling to the G-7 meeting in Marseille, France.
But big new measures and strong unity in the face of a threatening economic slowdown remained elusive among finance ministers and central bankers gathering here, with different nations touting widely divergent solutions to the crisis.
A day after U.S. President Barack Obama announced a $447 billion package to create new jobs and Treasury Secretary Timothy Geithner called on the world's healthier economies to slow down spending cuts and give weaker countries a much needed boost, their call for stimulus did not gain much traction among the other G-7 nations.
"We must tread the difficult path of achieving fiscal adjustment plans while supporting economic activity," French Finance Minister Francois Baroin told reporters as he summed up Friday's discussions.
But neither Baroin nor any of the other officials explained what that support for growth would look like in practice at a time when central bank's interest rates are already low and several rounds of monetary easing — pumping billions of dollars or pounds into the U.S. and U.K. economies — have failed to get growth back to pre-crisis levels.
Each country has to respond differently, Baroin said, adding that the choice was not between austerity or growth.
That hedge seemed to reflect a general lack of strong unity at the meeting.
German Finance Minister Wolfgang Schaeuble, whose country weathered the crisis much better than most other industrialized economies and which seemed to be one of the targets of Geithner's call for stimulus, stressed that Berlin would not budge from its course of "growth-supporting deficit reduction."
Growth may have tapered off somewhat, Schaeuble said after the meeting, "but the slowdown doesn't come as a surprise and one shouldn't overly dramatize it."
That strategy was echoed by the EU's Monetary Affairs Commissioner Olli Rehn, who emphasized that the eurozone's most struggling economies — already bailed out Greece, Ireland and Portugal — had no choice but to cut their deficits and debts.
"They have no room for stimulus. They have to continue or even intensify fiscal consolidation," Rehn said.
Instead of announcing new measures, the ministers recommitted to plans they have already announced, including a new bailout for struggling Greece and expanding the powers of the eurozone's €440 billion bailout fund.
"For governments, to restore confidence in our decision making process we need to respect the engagements we've made. That will reassure the markets," Baroin said.
Financial markets, which have been exceptionally volatile in recent weeks, however, seemed unimpressed by that logic. Earlier Friday they dropped sharply, following the surprise resignation of a top official at the European Central Bank — a move analyst said reflected disagreement over the bank's crisis strategy.
The same appeared to be true for some of the non-European G-7 countries. Canadian Finance Minister Jim Flaherty called on the eurozone to increase its bailout fund beyond the current €440 billion ($618 billion), an unusually concrete demand from a non-European politician.
Geithner, meanwhile, remained more vague in his comments, saying only that the Europeans "have got some more work to do."
However, the treasury chief did not shy away from blaming the eurozone's reluctance to embrace more radical measures for the global economic troubles. "It was the principal cause of the slowdown we had last summer, and it's been a significant cause of the slowdown we've had this summer," Geithner said.
The talks, which are set to turn to Libya Saturday, came on the back of a downbeat assessment of the global outlook by the Organization for Economic Co-operation and Development. The watchdog for the world's most developed economies slashed its forecast for growth in the U.S. and the eurozone this year due to government belt-tightening and falling consumer and business confidence.
The G7 countries make up seven of the world's nine largest economies and collectively account for just over half of the world's total economic output.
Sarah DiLorenzo contributed to this story.