G-8 leaders stress need for stimulus

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July 8, 2009

Anonymous The Salem News Wed Jul 08, 2009, 12:42 PM EDT

L'AQUILA, Italy (AP) — World leaders agreed that the global economy is too shaky to begin rolling back massive fiscal stimulus plans right now, according to a draft of the Group of Eight statement on the world economy obtained by The Associated Press.

The leaders said in the draft that they "note some signs of stabilization" but continued to stress the difficult outlook instead of concerns over debt and high spending.

"The economic situation remains uncertain and significant risks remain to economic and financial stability," the draft read. "We will take, individually and collectively, the necessary steps to return the global economy to a strong, stable and sustainable growth path."

The leaders did commit to prepare exit strategies from the "unprecedented and concerted action" that has been taken to boost growth through government spending, low interest rates, and expansive monetary policy. Germany, worried about running up cripping debt, has pressed for spending restraint, while other major economies like Britain, Japan and the United States can't rule out the need to pump in more money.

The measures include continuing their stimulus packages while keeping inflation under control, a particular German concern, while also ensuring that banks have enough cash to keep lending.

In the meantime, the countries will prepare exit strategies, with the help of the International Monetary Fund, which will vary from country to country as the measures themselves have, the draft said.

The leaders gathered Wednesday in the quake-devastated central Italian city of L'Aquila, where they also wrestled over a potential landmark agreement on limiting the global rise in temperature. Over dinner later, they planned to turn their attention to world security issues from Iran to North Korea.

Italian host, Premier Silvio Berlusconi, welcomed the leaders, many of whom arrived at the summit in electric cars bearing their nation's flag. President Barack Obama strolled into the summit site for the first G-8 meeting of his presidency.

The leaders may fall short on reaching a commitment to keep the globe's average temperature rise under 2 degrees Celsius (3.6 degrees Fahrenheit) in a bid to contain global warming. The United States, Japan, Canada and Russia — half of the G-8 — have previously refused to back it, and the White House declined Wednesday to comment if it had signed off on a statement citing the temperature threshold.

U.S. backing for the deal would mark an abrupt turnaround from the Bush administration's stand and be a strong gesture to developing nations.

European Commission President Jose Manuel Barroso told reporters that he hoped that the leaders could agree to the specific limit on the rise in temperature.

"We are not yet there where we would like to be but I think things are shaping in the right direction for Copenhagen," Barroso said, referring to the next meeting of a key international summit to replace the Kyoto protocol in December.

The abrupt return home of Chinese President Hu Jintao after ethnic tensions soared in China's western Xingjiang territory could weaken trust-building discussions on making further progress on climate change.

China is among five developing market economies — along with Brazil, India, Mexico and South Africa — who are participating in the summit for the fifth straight year, joining from Thursday to discuss bringing them on board, aid and development. Also joining are nine African nations and a forum on climate change.

The summit will also discuss ways to expand the Group of Eight even further amid growing sentiment that world's most-industrialized nations can no longer claim leadership on the global political and economic agenda.

Obama signed an $787 billion economic stimulus bill in February, but experts say only about 15 percent of that has made its way into the economy so far — creating a debate between the wait-and-see camp and economists who urge another stimulus, arguing the recession proved to be deeper and more devastating than originally believed.

White House press secretary Robert Gibbs said Obama is satisfied with the recovery steps taken thus far but "won't hesitate" to take others if he thinks they are necessary. "He is not ruling anything out. But at the same time, he's not ruling anything in," Gibbs told reporters traveling with the president.

In the draft, the leaders also called on experts at the International Energy Forum to look at how they can dampen volatility in oil prices. France and Britain had sought the intervention of regulators to reduce what they called "damaging speculation" in oil futures markets. Oil prices have plunged from around $147 a barrel last July to $32 late last year, then to $73 last week.

The document also calls for a rapid conclusion to the stalled Doha trade round, but failed to set a deadline. G-8 leaders will discuss this with other leaders tomorrow, the statement said.

The G8 draft statement on the economy calls for an "enhanced global framework for financial regulation" and to address flaws in the current system to help prevent future economic crises, but fails to make any concrete proposals. Leaders say they will address issues such as executive pay, definition of capital, risk management and the regulation of hedge funds and credit rating agencies.

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