G7 likely to reject idea of concerted

G7 likely to reject idea of concerted stimulus

By Chris Giles in London and David Pilling in Tokyo

Published: February 5 2008 17:41 | Last updated: February 5 2008 17:41

A concerted international fiscal stimulus package to boost economic growth and address the turmoil in credit markets is set to be rejected at the meeting of Group of Seven finance ministers and central bank governors on Saturday.

The G7 group of leading industrialised countries expect little concrete agreement on measures to ease the credit crisis, partly because the US believes it is too early to learn lessons.

The group will, however, discuss the deteriorating ­global economic outlook, currencies and regulatory responses to the financial crisis as an interim step to agreeing action at the International Monetary Fund spring meetings.

Although the International Trade Union Confederation and the US Treasury on Tuesday supported the call from Dominique Strauss-Kahn, head of the IMF, for temporary tax cuts to boost the world economy, that position received little support from other G7 countries in briefings this week.

Fukushiro Nukaga, Japan’s finance minister, said: “We have learned what such fiscal spending could mean from our experience after the burst of the bubble,” referring to attempts to spend Japan out of recession and deflation in the 1990s.

Japan’s objections to fiscal policy action were echoed in Berlin, where Thomas Mirow, the deputy finance minister, insisted Germany’s economy was robust. “There is no reason for additional measures,” he said. In the UK, the Treasury made it clear it saw no grounds for a sizable fiscal stimulus and was planning no such measures in the March Budget.

But if other countries are not going to follow the US with a big loosening of their structural fiscal policy, none was willing to criticise the US for its actions.

Many nations outside the US are pushing for the accelerated disclosure of financial losses arising from the credit crisis. Mr Nukaga said: “The important thing is to stabilise markets and create a relationship of trust by promoting information disclosure such as losses at financial institutions.”

Alistair Darling, the UK chancellor, concurred, adding that he would be calling for “improvements in the information content of credit ratings and action to address potential conflicts of interest for rating agencies”.

The US made clear its position on swift action. Apart from calling on other countries to “take prudential steps to strengthen their economies’ demand components”, David McCormick, the US Treasury’s undersecretary for international affairs, on Tuesday insisted the regulatory challenges “are complex and require careful analysis so that we can effectively target the real problems and not rush to judgment”.

The G7 will receive an interim report from the Financial Stability Forum into the causes of the crisis and is, therefore, likely to tell it to draw up proposals in time for the spring meetings of the IMF in April. Currency movements will also receive their traditional airing at the G7.