Ministers from the Group of 20 expect to discuss exit strategies from the massive global economic stimulus, but all agree they must act cautiously. U.S. Treasury Secretary Timothy Geithner also wants to add leverage restraints to the G-20 agenda.
The ministers will meet Friday evening in London to prepare the agenda for the September 24 and 25 summit of G-20 leaders in Pittsburgh. A joint statement is expected Saturday afternoon.
The European leaders, including British Prime Minister Gordon Brown, German Chancellor Angela Merkel and French President Nicolas Sarkozy, issued a statement acknowledging the economic crisis was not over, but said it was time to begin making plans for exiting emergency measures once the danger has passed. Geithner disagreed and downplayed the prospect of concrete initiatives on exit strategies, but did think it was time to focus on laying the groundwork for eventually withdrawing emergency measures.
It sounds as though the European leaders were not saying anything very different from Geithner. In a letter to the current European's rotating president Swedish Prime Minister Fredrick Reinfeldt, the European leaders said, "While at present there is no alternative to the policy measures adopted to fight the crisis, we must be careful to avoid laying the foundations of new global imbalances in the longer run. Therefore we should work on exit strategies to be implemented in a coordinated manner as soon as the crisis has ended."
International Monetary Fund Managing Director Dominique Strauss-Kahn also added a word of caution. He said he still sees "serious downside risks." He's concerned the recovery will be sluggish and possibly jobless, which means the nations must act cautiously before withdrawing stimulus measures. In prepared remarks for his annual Bundesbank lecture in Berlin, Strauss-Kahn said, "Mounting delinquencies mean banks remain under strain, with developments in the commercial real estate sector of particular concern. Private securitization markets are still impaired. And households and the financial sector continue to deleverage."
Geithner does have an additional agenda item he wants to push at the G-20 meetings. He wants a new global accord to constrain the excessive use of leverage by the banks. He wants the ministers to discuss a framework of principles on a new international capital accord that will be put in place after the crisis has ended. This framework should clearly spell out constraints on leverage in the financial sector across the major globally active financial institutions.
Stay tuned. We'll find out what the ministers agreed to sometime on Saturday afternoon.
Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.