MercoPress. South Atlantic News Agency

G8 concerned with “exit strategies” from stimulus packages

Hundreds of Billions of US dollars pumped into the richest economies could backfire into runaway debt and inflation

The leaders of G8 believe the world economy still faces “significant risks” and may need further help, but macro-economic stimulus “must be consistent with price stability and medium-term fiscal sustainability” according to summit documents that also reflect failure to agree climate change goals for 2050.

Progress on the environment was impeded by Chinese President Hu Jintao returning home due to unrest in north western China in which at least 160 people have died. Before he left, summit host Silvio Berlusconi spoke of Chinese “resistance” on climate goals.

“Significant risks remain to economic and financial stability” while “exit strategies” from pro-growth packages should be unwound only “once recovery is assured.”

Leaders met in L'Aquila, a mountain town wrecked by April's earthquake and a fitting backdrop to talks on a global economy struggling to overcome the worst recession in living memory.

The Group of Eight -- United States, Germany, Japan, France, Britain, Italy, Canada and Russia -- kicked off with debate on the economic crisis, after what one analyst called a “reality check” in recent weeks on the prospects for rapid recovery.

G8 leaders badly underestimated the economic problems facing them when they met in Japan last year and were expected to focus on what must be done to prevent another meltdown.

“We agreed on the need to prepare appropriate strategies for unwinding extraordinary measures once the recovery is assured” said the G8 in a statement.

Battered by the worst financial crisis in a generation, G8 governments have ploughed hundreds of billions of dollars into propping up their economies but have still failed to avert a dire recession.

Concerns are growing that the vast amounts of money consumed by economic stimulus measures will fuel runaway debt and emergency central actions will cause inflation to return with a vengeance when activity picks up.

In light of such concerns, the leaders said: “We commit ... to continue to provide macro-economic stimulus consistent with price stability and medium-term fiscal sustainability”.

Mr Kazuo Kodama, a spokesman for Japanese Prime Minister Taro Aso, said that once the world economy had turned the corner, countries would have to find ways to roll back the expensive stimulus measures they had been forced to take.

“We agreed on the need to apply appropriate strategies for unravelling the extraordinary policy measures taken to resolve the crisis”, he said.

The International Monetary Fund forecast on Wednesday that growth in the global economy will be stronger in 2010 than it thought only a few months ago, but said recovery from the worst recession since World War II would be sluggish.

The IMF raised its 2010 global growth forecast to 2.5%, an improvement of 0.6 points from its April forecast. However, the updated IMF forecast was marginally worse for 2009, showing a contraction of 1.4% across the global economy.