G7 State Economic Downturn to Be 'Severe': Offer No Specific Plan

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    G-7 Says ‘Severe’ Downturn to Persist, Vows to End It (Update2)
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    By Simon Kennedy and Sandrine Rastello

    Feb. 14 (Bloomberg) --
    Group of Seven finance chiefs vowed to tackle a “severe” economic downturn that will persist for most of 2009 without spelling out new steps to do so.

    A pic of some of the most incompetent assholes to ever be in charge of anything, attempting to look competent.

    The G-7’s finance ministers and central bankers said in a statement released after talks in Rome today that they were working to restore confidence in markets and revive the world economy. They predicted the full effect of individual rescue packages will “build over time.”

    “We reaffirm our commitment to act together using the full range of policy tools to support growth and employment and strengthen the financial sector,” the statement said. “The stabilization of the global economy and financial markets remains our highest priority.”

    The policy makers met after reports yesterday showed Germany’s economy contracted the most in 22 years in the fourth quarter and U.S. consumer confidence neared its lowest since 1981. With the worst global slump since World War II battering state finances, International Monetary Fund Managing Director Dominique Strauss-Kahn said he expects more countries to need emergency aid.

    That’s putting governments and central banks under greater pressure to end the malaise and U.S. Treasury Secretary Timothy Geithner today urged actions that are “forceful and sustained for a period that matches the likely duration of the crisis.”

    At a Loss

    The authorities are still at a loss on the best course of action 18 months after the credit crisis broke out. That’s left them pursuing a disjointed approach as the global economy deteriorates further and companies from Microsoft Corp. to Nissan Motor Co. cut jobs.

    U.S. stocks fell the most this week since November, extending the Dow Jones Industrial Average index’s decline since the start of the year to 11 percent.

    “The statement ticks all the right boxes, but as expected does not go beyond generic statements of principle and commitments that we have heard before,” said Marco Annunziata, chief economist at Unicredit MIB in London. “The commitment to act in a coordinated way flies in the face of the rather uncoordinated approach that followed similar commitments last October.”

    Geithner, a former Treasury undersecretary in the Clinton administration, returned to the G-7 stage after a week in which investors complained his $2 trillion plan to revive lending lacked detail. His colleagues today urged him to push ahead.

    “On paper it looks great and the principles are certainly very good,” said French Finance Minister Christine Lagarde. “The essential thing is now to implement it.”


    “It is a comprehensive plan, the intent is there, the will is there,” Bank of Canada Governor Mark Carney told reporters in Rome. “The question is implementation and execution.”

    The G-7 called the steps its members have taken to fight the turmoil “exceptional,” noting they ranged from spurring liquidity in markets and bolstering capital in banks to slashing interest rates and easing fiscal policy.

    Amid signs some are attempting to shield domestic companies and workers from the fallout, the G-7 said it “remains committed to avoiding protectionist measures, which risks exacerbating the downturn.”

    A $787 billion package of tax cuts and spending increases passed late yesterday by the U.S. Congress encourages companies to “Buy American.” France is demanding carmakers keep production at home in return for aid.

    “We must be vigilant on creeping protectionism whether it is intentional or unintentional,” U.K. Chancellor of the Exchequer Alistair Darling said.

    Yuan Gains

    The G-7 officials tempered past criticisms of Chinese currency policy, saying they welcomed the country’s bid to invigorate its economy. The nation’s commitment to a more flexible yuan should lead “to continued appreciation” in the exchange rate. Geithner, who last month accused China of “manipulating” its currency, also welcomed China’s efforts.

    “The G-7 has realised that China needs to be brought into the fold of the global financial system rather than be treated as a pariah just because of yuan inflexibility,” said Geoffrey Yu, a London-based foreign-exchange strategist at UBS AG in London. “This statement will be welcomed in Beijing and help defuse the recent tension between China and the U.S.”

    The group repeated its traditional message that “excessive volatility” and “disorderly movements” in exchange rates must be avoided.

    ‘Second Wave’

    The omission of any G-7 currency from the communiqué meant “there’s likely to be only a muted reaction” in markets, said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey.

    As he predicted a “second wave” of countries seeking assistance, the IMF’s Strauss-Kahn signed a deal with Japan to give the lender access to an extra $100 billion after it issued loans from Iceland to Pakistan to Hungary.

    The G-7 officials also probed ways of strengthening oversight of markets before they convene next month in the U.K. with colleagues from the broader Group of 20 nations. The scope of regulation, compensation packages and risk management are all under review, their statement said.

    The G-7 oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.

    To contact the reporter on this story: Simon Kennedy in Rome at skennedy4@bloomberg.net
    Last Updated: February 14, 2009 11:29 EST