The G7 grouping of major industrial nations pledged to counter any further weakening of the world economy even as they clashed over Washington's proposed US$690 billion of tax cuts.
"If the economic outlook weakens we are prepared to respond as appropriate," said a draft statement distributed to reporters in Paris, where G7 finance ministers and central bankers are meeting. "Geopolitical uncertainties have increased."
Growth in the US slowed to an annual pace of 0.7 percent last quarter from 4 percent in the preceding three months. The economy of the dozen euro nations may shrink this quarter, after the slowest expansion in almost a decade last year. Japan's gross domestic product rose 0.3 percent last year.
The one-page draft statement didn't say how the G7 intends to respond should growth slow further. Members of the group have pursued different policies to spur growth. The US and Japan are cutting taxes, while Germany and the UK are raising them. The European Central Bank has cut interest rates at only half the pace of the US Federal Reserve.
"Everybody is pulling the cover over their head and doing their own thing," said Philippe Waechter, head of strategy at Banque Populaire Asset Management in Paris, which oversees 56 billion euros (US$60.5 billion) in stocks and bonds. "Everyone has their own view of how to run the economy so when they talk about cooperating, it's all a bit vacuous."
The pledge to cooperate was overshadowed by comments criticizing the Bush administration's third proposed tax in two years, saying it could widen the US's budget and trade deficits.
"We have been witnessing a rapid deterioration of the US current account position as well as of the US general government deficit," said Nikos Christodoulakis, the economy minister of Greece, which holds the rotating EU presidency.
"Large twin deficits may create sustainability risks, which in case they materialize would have significant ramifications well beyond the US itself."
The Greek minister said that "it is only with great caution that fiscal policies should be used to create short-term economic stimulus."
Wim Duisenberg, president of the European Central Bank, said, "It is a cause of concern for Europe and the world that the situation of twin deficits seems to be re-emerging."
US Treasury Secretary John Snow, making his first appearance at a G7 meeting, hasn't spoken yet publicly. The US government predicts the budget deficit will reach an unprecedented US$307 billion, or 2.7 percent of gross domestic product next year, and the trade deficit reached a record US$44.2 billion in December.
Snow has said the budget gap is "manageable." The ECB's Duisenberg was the only leader at today's meeting to suggest what steps might be taken to boost growth, indicating that he may lower rates. Duisenberg said the economy of the dozen nations sharing the euro probably won't recover this year.
"The perspective of an economic recovery this year is no longer supported by the most up-to-date information," Duisenberg, who is attending the meeting, told reporters. "This weaker outlook should contribute to lower inflationary pressures."
Just last Monday, Duisenberg said he though economic growth would revive in the second half of the year.
For months, European executives have called on the ECB to reduce interest rates and lower the cost of borrowing. Gerard Hauser, chief executive officer of cable maker Nexans SA, says lower rates are needed to avert recession. Nexans posted a loss last year as demand for its phone cables waned.
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