L’aqula/Italy: Britain and the United States may see room for more stimulus. Germany is worried that it has done too much already.
The leaders of the Group of Eight nations — united in their desire to work together to combat the worst economic crisis since the Depression, but still divided on how much longer they need to keep the stimulus going — will discuss on Wednesday ways to coordinate their exit strategies once their economies are stable enough.
But the data is still grim — from rising unemployment to slowing growth — and most economists think the crisis has yet to reach its nadir.
The leaders of the G8 — Britain, Canada, France, Germany, Italy, Japan, Russia and the United States — will discuss at what point to begin the shift from the current emphasis on fiscal stimulus, but they also are likely to remain cautious in their assessment of recovery so far when they issue a statement later Wednesday.
China’s President Hu Jintao had planned to take part in a G8 meeting with major developing countries, but cut short his official trip to Europe to rush home after ethnic tensions soared in western Xinjiang territory. The foreign ministry said on its website on Wednesday that Hu had left Italy, and State councilor Dai Bingguo would attend the meeting in his place.
Both the United States and Europe have posted dismal jobless numbers. Unemployment in the euro zone rising in May to a 10-year high with more than 15 million people out of work. In the United States, the jobless rate jumped to a 26-year high of 9.5% in June as US employers cut a larger-than-expected 467,000 jobs. Leaders are fearful that more jobs still could be lost before the crisis bottoms out.
British Prime Minister Gordon Brown has emphasized that while there are clear signs of recovery — which have included on stronger consumer confidence, housing markets, and retail spending — it is too early to be complacent or to change current policies. He will urge fellow leaders to push ahead with plans to boost the global economy despite suggestions the worst is over, emphasizing the need to continue coordinated international action, a British official said on condition of anonymity.
Brown’s five-point plan for the summit includes increasing bank lending, reducing volatility in oil prices, curbing trade protectionism, boosting private investment and safeguarding the jobs of younger people.
US President Obama back in February signed an $787 billion economic stimulus bill in February, but only about 15% has made its way into the economy so far — creating a debate between the wait-and-see camp and economists who urge another stimulus, arguing the recession proved to be deeper and more devastating than originally believed.
“The challenge is how much more to put in. They clearly want to wait because you still have 85% to hit Americans’ wallets and Congress is quite rightly feeling cash-strapped,” said John Kirton of the G8 Research Group at the University of Toronto.
Because the impact of stimulus was still being measured, the discussions on possible exit strategies would remain “quite academic,” Kirton said. “None of the three largest economies in the world are ready to move on to exit strategies,” noting that Chancellor Angela Merkel faces elections in September and stimulus is unpopular among her supporters, while Japan, like the United States, is still waiting to gauge the impact of the last round.
The host Italians are promoting rules and regulations to help prevent future crisis based on a framework laid down at a G8 finance minister’s meeting last month in Leece and elaborated by the OECD. The 12-common principles aim to create a “strong, fair and clean economy” by fighting tax evasion, protectionism, bribery and money laundering.
France and Britain also want to discuss how to avoid excess fluctuation in oil prices, with a proposal for a price bracket high enough to allow oil companies to continue to invest while preventing prices from going too high.
The leaders will also discuss climate change and development aid later in the afternoon before taking on security issues, including Iran’s crackdown on pro-democracy demonstrators and North Korea’s recent firing of ballistic missiles into the ocean off its east coast in violation of UN resolutions.