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Tags: CN | Finance | Meetings

Geithner to Press G-7 Nations to Keep Stimulus Aid

Thursday, 04 February 2010 04:33 PM

Treasury Secretary Timothy Geithner will press major U.S. allies this weekend to maintain their stimulative aid to help the global economy rebound from the worst downturn in seven decades.

Aides say Geithner will argue that the recovery could falter if governments rely too much, too soon on still-sluggish spending by consumers and businesses. Unemployment rates have hit double digits in the United States and several European countries.

The talks begin Friday as Geithner and Federal Reserve Chairman Ben Bernanke meet with their counterparts from the Group of Seven major industrial countries. The meeting occurs in the most unusual G-7 setting ever: a tiny outpost 200 miles below the Arctic Circle where temperatures can dip to 40 degrees below zero in February.

Geithner will likely face questions from G-7 officials over what they see as unilateral U.S. steps to tighten bank regulation. But at the top of the agenda are the steps each nation is taking to revive its economy. Some countries have expressed concern about how long stimulus aid should be maintained. They worry about soaring budget deficits and the risk of inflation.

"We need to see a resumption of private-sector growth, but the key is that you don't want to withdraw government support prematurely," a senior U.S Treasury official told reporters. He spoke on condition of anonymity because he was speaking before the finance officials' discussions.

Geithner will likely point to the mistakes nations made during the Great Depression, when a tentative rebound fizzled after governments withdrew emergency support too soon.

President Barack Obama set an example with a budget plan Monday that would boost job-creation efforts and raise the U.S. budget deficit to a record $1.56 trillion this year — 10.6 percent of the total economy. Obama is seeking to win back middle class voters unhappy with a president they see as devoting too little effort to attacking unemployment.

British Prime Minister Gordon Brown, whose Labor Party is trailing in polls ahead of likely June elections, is also stressing government stimulus. Britain's budget deficit as a share of its gross domestic product could reach 12 percent this year.

In Japan, whose economy has struggled for two decades, the government unveiled more stimulus spending last week. Other G-7 nations also have stimulus measures still in place. But some politicians in Germany and France have raised concerns about stoking inflation.

A year ago, the United States pressed Europeans to boost their stimulus packages to match the $787 billion U.S. effort. Europeans resisted for fear of escalating budget deficits. They instead enacted smaller stimulus packages.

Now, the focus is more on the duration of stimulus aid. Geithner is expected to argue that government programs to support jobs must be kept in place through this year to give business and consumer spending time to gather momentum.

But U.S. stimulus spending has raised fears that budget deficits could trigger inflation and further drive down the dollar's value. A further fall in the dollar would irk nations such as France and Germany. Their manufacturers have complained that the dollar's slide against the euro gives U.S. competitors a competitive edge. A weaker dollar makes U.S. goods cheaper in overseas markets and European goods costlier for American consumers.

China, the world's third-largest economy but not a G-7 member, has emerged from the global crisis faster than other nations. It has started removing some of its stimulus measures related to interest rates and bank lending. The Federal Reserve isn't likely to start raising interest rates in the United States until late this year, given the fragile U.S. recovery.

The International Monetary Fund estimates China will grow at a sizzling 10 percent annual rate this year. For the global economy, the IMF projects growth of 3.9 percent this year, up by 0.8 percentage point from its October forecast and a rebound from a decline of 0.8 percent in 2009.

For the United States, the IMF sees growth of 2.7 percent this year, after a 2.4 percent decline in 2009, the biggest annual decline since 1946.

On financial reform, the G-7 group hopes to strengthen lax regulations that led to the financial meltdown. But efforts to reach consensus have faltered since the Obama administration surprised its allies by proposing tougher rules on risky bank activities.

"The Europeans were very upset that Obama was going off in a different direction than they had signed up for," said Nariman Behravesh, chief economist at IHS Global Insight.

Obama's banking proposals dominated discussions at last week's gathering of finance officials in Davos, Switzerland, with European officials voicing concerns.

British officials have said they don't need the strict limits on risky trading operations the administration is proposing. French Finance Minister Christine Lagarde has expressed concern, too. German Finance Minister Wolfgang Schaeuble has stressed the need for global coordination on financial regulation.

The G-7 countries are the United States, Japan, Germany, France, Britain, Italy and Canada. For three decades, the G-7 officials served as the unofficial board of directors for the global economy. But they have been supplanted by a larger Group of 20 nations. The G-20 includes not only the G-7 wealthy industrial countries but also such emerging powers as China, Brazil, India and Russia.

Canadian Finance Minister Jim Flaherty, the gathering's host, chose Iqaluit in part to drive home Canada's claim to a region that may contain one-fifth of the world's petroleum reserves.

Flaherty has promoted an informal feel. He has banned neckties during the meetings. And before the talks begin with a dinner Friday night, he's invited the finance officials to enjoy an afternoon of dogsledding.

No word on whether Geithner or Bernanke will participate.


Associated Press writers Jane Wardell in London, Rob Gillies in Toronto, Tomoko Hosaka in Tokyo, Juergen Baetz in Berlin, Emma Vandore in Paris, Colleen Barry in Milan and Joe McDonald in Beijing contributed to this report.

© Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Treasury Secretary Timothy Geithner will press major U.S. allies this weekend to maintain their stimulative aid to help the global economy rebound from the worst downturn in seven decades.Aides say Geithner will argue that the recovery could falter if governments rely too...
Thursday, 04 February 2010 04:33 PM
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