G-8 to Prepare Exit Strategy Once Recovery Assured

By Helene Fouquet and Roger Runningen

July 8 (Bloomberg) -- Group of Eight leaders said they will delay reversing stimulus measures until an economic recovery is assured and will each decide on their own exit strategies.

“We agreed on the need to prepare the appropriate strategies for unwinding the extra policy measures taken to respond to the crisis, once the recovery is assured,” according to a draft statement today during their summit in L’Aquila, Italy. The strategies “will vary from country to country depending on domestic economic conditions and public finances.”

While some policy makers have expressed optimism that the global recession may be easing, reports indicate any recovery is likely to be slow. The International Monetary Fund today said this year’s 1.4 percent global economic contraction will be worse than its 1.3 percent April forecast, while 2010 growth of 2.5 percent will be stronger than it previously estimated.

In mid-June, G-8 finance ministers concluded that it was time to begin drafting contingency plans for rolling back budget deficits and bank bailouts as the economy showed signs of recovery. They also said it was premature to rein in more than $2 trillion in stimulus packages.

Economy Unstable

An aide to President Barack Obama said earlier today that the global economy remained unstable and that it was too soon to begin withdrawing the stimulus.

“There is still uncertainty and risk in the system,” Mike Froman, deputy National Security Adviser, told reporters at a briefing in L’Aquila.

Obama arrived in Italy today from Russia where he met President Dmitry Medvedev and Prime Minister Vladimir Putin. He met Italian President Giorgio Napolitano in Rome before traveling to L’Aquila.

More U.S. Stimulus

Obama has left the door open to a second stimulus package after the first one for $787 billion was signed into law in February.

Obama has underscored the dilemma of either boosting an already record budget deficit or letting unemployment climb. In an interview with ABC News yesterday, he said unemployment approaching 10 percent is something “we wrestle with constantly.” He added that spending more borrowed money is “potentially counterproductive.”

The G-8 leaders also agreed on the need for “enhanced” financial regulation, including coordinating accounting and oversight standards as well “comprehensive oversight of all systemically significant entities and activities.”

And they called for the “rapid” conclusion of global trade talks and the rejection of “protectionism of any kind.”

The members of the G-8 -- Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S -- comprise 880 million people with combined gross domestic product of $32 trillion.

Other participants at this week’s meetings include Brazil, China, India, Mexico, South Africa, Egypt and several other nations from Asia, Africa and Europe. The summit concludes July 10.

To contact the reporter on this story: Roger Runningen in L’Aquila, Italy, at rrunningen@bloomberg.net; Helene Fouquet in L’Aquila, Italy at hfouquet1@bloomberg.net