Uncertain prospects for a global economic recovery gripped talks between G8 finance ministers yesterday in Italy as rifts emerged on testing the stability of Europe’s crisis-hit banks.
“We shouldn’t get carried away with the recovery while we’re still relaunching, stimulating and ensuring that our recovery plans work,” French Finance Minister Christine Lagarde told reporters late on Friday at the talks.
“We must be very prudent because the shock was extremely brutal,” she said.
Germany’s Peer Steinbrueck said the meeting would struggle to find support for “exit strategies” — cuts in spending and deficits once growth restarts.
“The danger of short-term deflation is minor compared to the risk of long-term inflation,” Steinbrueck was quoted by the Financial Times as saying.
Lagarde also said European ministers would tell US Treasury Secretary Timothy Geithner that they are not yet ready to carry out US-style “stress tests” to check on the capital requirements of individual banks.
Britain has backed the tests and warned its recovery could be held back by other European countries failing to clean up their banks. But Germany has said the checks could undermine confidence in the stability of its banks.
“If there is a problem it doesn’t get any better by walking around it and hoping it will go away,” British Chancellor of the Exchequer Alistair Darling told the Financial Times ahead of the talks in Lecce in southern Italy.
“Because if you don’t sort that problem you’ll never sort out the economy,” he said.
Signs have emerged in recent weeks of a modest start to a recovery in countries such as Britain, France, Germany, Italy and the US.
That in turn has sparked debate over “exit strategies,” or how governments will rein in spending and cut massive debts incurred during the crisis.
Some have warned, however, that it may be too early to declare the worst over while output in many parts of the world continues to decline and unemployment soars.
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