LECCE, Italy (Reuters) – The world’s rich nations, heartened by signs the credit crisis is easing, have started to consider how to unwind rescue steps for their economies once recovery is certain, their finance ministers said yesterday.
Meeting in southern Italy, the ministers described their economies in the most positive terms since the collapse of Lehman Brothers nine months ago ushered in the world’s worst financial crisis since the Great Depression of the 1930s.
“The force of the economic storm is receding. There are encouraging signs of stabilisation across many economies,” said US Treasury Secretary Timothy Geithner as finance ministers of the Group of Eight nations ended two-day talks.
A surge in long-term government bond yields over the past several weeks shows financial markets fear huge sums of money poured into economies through drastic stimulus will ultimately fuel inflation and cripple state finances.
But ministers clearly differed over how quickly the world should start rolling back huge state spending plans and hiking interest rates. And there was continued disagreement over other aspects of the crisis, especially testing the health of banks.
The meeting’s final joint statement said they had asked the International Monetary Fund to help them analyse possible ways of ending economic stimulus policies.
A G8 source, who declined to be named, told Reuters that the IMF report would probably be presented at the fund’s October annual meeting in Istanbul. Most private sector economists do not expect any major tightening of fiscal and monetary policies in the developed world before next year.
Pressure has been building in the G8, particularly from fiscally conservative nations such as Germany and Canada, for plans to wind down stimulus as soon as it is no longer needed — “exit strategies” that would prevent market interest rates from climbing high enough to threaten economic recovery.
