Vague pledges and a lack of action by G7 countries underscored differences between Europe and the United States and a lack of room to manoeuvre in the face of the worst loss of confidence since the credit crisis.
After weeks of market turbulence, finance ministers and central bankers from the Group of Seven industrialised nations pledged a coordinated response on Friday to the global slowdown but offered no specific steps and differed in emphasis on Europe’s debt crisis.
While the US called on Europe’s biggest economies to provide “unequivocal” support to struggling peripheral states to overcome a debt crisis that is crippling the world recovery, euro zone paymaster Germany said the priority was cutting deficits.
“There is no sense of direction, which is entirely expected given that there is no agreement on the path for fiscal policy between the US and Europe and there is no agreement on the path of monetary policy either,” said Gilles Moec, senior economist with Deutsche Bank in London.
“In a way, it’s a communiqué which is a list of constraints which policymakers are facing,” he said of a final statement host country France pushed other reluctant G7 members to produce at the end of talks that overran by nearly two hours.
Despite initially saying there was no need for a communiqué, France changed its tune to send a signal of unity to markets after Wall Street slumped nearly 3% on Friday.
“The communiqué was at the insistence of the French but in practice it’s meaningless. We can’t even agree on the problems so how can we agree on an analysis,” said one G7 delegate.
Already battered markets were roiled by Friday’s resignation of the top German official at the European Central Bank in protest at the bank’s bond buying programme, laying bare divisions within the European policymaking sphere just as the G7 illustrated global differences.
No talk of coordinated stimulus
The final “terms of reference”, less binding than a formal G7 communiqué, acknowledged tensions in markets and clear signs of a slowdown in global growth.
“We are committed to a strong and coordinated international response to these challenges,” it said, but provided no further specifics beyond urging growth-friendly fiscal adjustments.
The statement voiced support for US President Barack Obama’s $447-billion jobs plan and for Europe’s July 21 decision to beef up the powers of the euro zone’s EFSF bailout facility but papered over cracks in policy differences.
Speculation had swirled in some quarters that G7 central bankers might flag a coordinated monetary stimulus involving quantitative easing but a second G7 delegate said that possibility was not even discussed.
“It is not realistic for the market to expect us to put hundreds of billions on the table every time we meet,” he said.
Geithner told Friday’s meeting he was confident the US government would get at least a substantial part of Obama’s jobs package through Congress despite Republican resistance, another delegate said.
US officials said most of the meeting was devoted to Europe’s debt crisis and the health of its banks.
Seeking to allay fears over European bank funding, ECB President Jean-Claude Trichet told the meeting European banks held some $5-trillion in collateral eligible for access to central bank funds.
While Japan said it had received G7 blessing for unilateral foreign exchange action, delegates said the issue had not really even been discussed in depth by the meeting and the statement had simply used the wording of previous statements. — Reuters