G7 chiefs pledge to push stimulus despite debt woe
Published 08/02/2010 | 05:00
FINANCE ministers of the seven major industrial countries sought to calm jittery markets by pledging to keep up government aid to sustain a fledgling economic rebound.
"We need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track," said Canada's Jim Flaherty.
Governments face a growing dilemma as they seek to fortify recoveries from last year's recession at a time when rising sovereign debt burdens are being punished by investors and threaten to hobble future expansion.
The MSCI World Index of stocks fell to its lowest since October this week amid concern Greece and some other European nations may default.
"They are running a gauntlet, hemmed in between debt crisis on the one side and a double-dip recession on the other," said US market strategist TJ Marta.
Greece is struggling to persuade financial markets it can restrain the European Union's largest budget shortfall without outside assistance, while borrowing costs are also rising for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to record highs this week.
European finance ministers said they will help ensure Greece tackles its deficit and European Central Bank president Jean-Claude Trichet said the bank is "confident" the country will cut its gap below the EU's limit of 3pc of gross domestic product by 2012.
"The message was clearly that the European members of the Group of Seven have confirmed the substance and significance of the plan put together by Greece," French Finance Minister Christine Lagarde said.
The G7 governments, representing about half of the world economy, are betting that spending now will generate enough economic growth to help erode their fiscal imbalances and make it easier for them to pull back later.
"The position for most countries is to support the economies now and get the budget deficit down as the economy recovers," British Chancellor of the Exchequer Alistair Darling said in Iqaluit, Canada. (Bloomberg)