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. Last Updated: 07/27/2016

G8 Discusses Unwinding Anti-Crisis Measures

APKudrin, second left, and Italian Finance Minister Giulio Tremonti signing a tax accord on Saturday in Lecce, Italy.
The Group of Eight industrialized nations, heartened by signs that 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 Saturday.

Acknowledging "signs of stabilization in our economies," G8 finance ministers tasked the International Monetary Fund with studying how best to roll back measures introduced to help the global economy. But the ministers said it was still too early to shift strategies, as many economies were still stabilizing from the financial and economic turmoil.

"Of course, the G8 meeting was a stormy one. We discussed all the most heated issues," Finance Minister Alexei Kudrin told reporters after the conclusion of the talks, which were held in a medieval castle in Lecce, Italy. "On the whole, the uncertainty hasn't gone anywhere -- the risks remain on the financial markets as well in certain regions. So it's too early to start talking about the end of the crisis."

The ministers backed away from proposals by some countries to give the IMF until the end of the year to complete its investigation, suggesting that the group agreed to a compromise. The United States and Britain are worried that continental Europe has not done enough to deal with the recession, while more cautious countries like Germany fret about the potential long-term risks posed by the stimulus measures.

A G8 source who declined to be identified 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.

The two-day meeting -- meant to set the agenda for a gathering of G8 heads of state next month in L'Aquila, in central Italy -- was held as several months of improving economic data fueled a rally on world stock markets.

"These early signs of improvement are encouraging, but the global economy is still operating well below potential, and we still face acute challenges," U.S. Treasury Secretary Timothy Geithner told reporters after the meeting, emphasizing that it was too early to shift policy.

"Economic and financial recovery ... will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has passed."

The World Bank forecast last week that the global economy would shrink 3 percent this year, far worse than a previous estimate for a 1.75 percent contraction.

In their communique, ministers from the United States, Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union said the "situation remains uncertain and significant risks remain to economic and financial stability" and stressed their commitment to provide any more stimulus that the economy might need.

But they also said they had asked the IMF to help outline exit strategies from monetary and fiscal stimulus measures, like tax cuts and lower interest rates and said such plans were "essential to promote a sustainable recovery over the long term."

Germany has been a particularly strong critic of the lower interest rates, tax cuts and measures to boost the money supply that have been employed aggressively by countries including Britain and the United States, warning that they could stoke inflation and swell deficits.

British Treasury chief Alistair Darling downplayed the urgency of exit strategies in the current economic climate, saying some countries were only just beginning the process of sorting out problems in the banking sector.

"One thing we are absolutely clear about is we are not there yet," Darling told reporters. "No one's talking about exiting now, this is some way down the track. We've still got to work this through."

The G8 ministers also agreed on the objectives of a strategy, dubbed the Lecce Framework, to identify and fill regulatory gaps and to implement new rules to promote transparency in international business and finance.

Geithner said proposals on regulatory reform due to be outlined in the United States this week would include several international measures. The United States will call on foreign banking regulators to develop proposals by the end of this year to find ways to quickly resolve failures of cross-border financial firms, he said.

The communique also identified volatile commodity prices as a major threat to economies. Crude oil has jumped nearly 75 percent since the end of February, even though it remains about 50 percent down from last year's record peak.

(AP, Reuters, MT)