G-20 Commits to Recovery Measures

G-20 Commits to Recovery Measures, Not Stimulus Spending

By DAMIAN PALETTA and STEPHEN FIDLER

HORSHAM, U.K.—Top government officials from around the world committed to take steps to revive the ailing global economy and financial markets, but stopped short of making specific commitments to stimulus spending -- a U.S. priority -- and also pressured the Obama administration to fix its banking system.

Associated Press

U.K. Chancellor of the Exchequer Alistair Darling speaks to U.S. Treasury Secretary Timothy Geithner on the sidelines of the G-20 meeting.

Finance ministers and central bank governors from the Group of 20 leading nations broadly agreed to a number of measures, including implementing expansionary fiscal and monetary policies "until growth is restored." (Read the statement.)

But they stopped short of agreeing on a specific 2% stimulus target U.S. officials had suggested and made only generalized commitments to new measures. The U.S. and leading European nations have been split on whether more stimulus spending is necessary—the Germans and French are opposed—and the weekend's meeting of finance ministers didn't appear to resolve the tension.

The G-20 session was held in a countryside hotel south of London in preparation for a summit meeting of G-20 heads of state and government April 2 in the British capital. Failure to reach a firmer agreement then could further unsettle global financial markets.

The deteriorating health of some big banks was a dominant theme of the meeting, and officials agreed that more needed to be done to address the toxic assets eating away bank reserves and curbing bank lending.

Some foreign leaders expressed surprise that U.S. efforts to contain the banking crisis hadn't been more effective or more rapidly implemented. During the discussions, Treasury Secretary Timothy Geithner told his peers that U.S. officials acknowledged the country's role in creating the crisis and recognized a greater responsibility to lead the world out of it, one person attending the meeting said.

"Damage inflicted by financial crises is brutal and indiscriminate," Mr. Geithner said in an interview after the meeting. "We all have a shared interest in a stronger recovery globally."

U.K. Chancellor of the Exchequer Alistair Darling, who hosted the summit, said policy makers agreed to "to do whatever was necessary and continue to do it for as long as is necessary" to combat the financial crisis.

The discussions also focused on other ways to address the financial crisis, and to ensure any new measures didn't hamper any recovery, from increasing financial-market oversight and bank-capital requirements to boosting the finances of the International Monetary Fund so it can better help emerging economies.

"You are seeing the world move together at a speed and on a scale without precedent in modern times," Mr. Geithner told reporters after the meeting.

In an unusual move, the officials released a three-page "framework for financial repair and recovery" aimed at restoring bank lending. The framework was meant to address the concern of some governments that efforts to address the troubled assets at the heart of the crisis haven't been aggressive enough.

Possible actions it listed included providing liquidity through government guarantees, injecting capital into banks, safeguarding deposits, and addressing impaired assets.

"Some countries have not fixed their banks, so I want them to fix their banks," Canada's Finance Minister Jim Flaherty said after the meeting.

The point was also emphasized by Germany's finance minister Peer Steinbrueck. Germany, like other European nations, has been under U.S. pressure to boost its fiscal stimulus.

"We are convinced it makes no sense to pump more and more money in our economy when we haven't restored the confidence on the financial markets," he told reporters during a joint press conference with his French colleague Christine Lagarde—an indication of the two countries' similar position on the matter.

The original $700 billion Troubled Asset Relief Program devised by former Treasury Secretary Henry Paulson was initially designed to allow banks to rid themselves of assets that were causing spiraling losses and had destroyed confidence in the banking system. Mr. Paulson switched gears after a few weeks to focus on capital injections.

Mr. Geithner, as part of his bailout revamp, has refocused attention on the asset problem. In addition to a program already initiated with the Federal Reserve, he's expected to unveil shortly details of a public-private partnership designed to buy soured mortgages and other loans.

Despite these tensions, ministers said the meeting had been marked mostly by strong agreement over the urgency for united action. Guillermo Ortiz, Mexico's central bank governor, said in an interview: "The gravity of the crisis was recognized… I've rarely seen however such a unity of views in terms of diagnosis, in terms of what needs to be done and the necessity of showing common ground."

They also said further discussion was necessary. Christian Noyer, France's central bank president, said: "It's a stage, but an important stage."

Policy makers also agreed to expand the resources and the clout of the IMF, which they called on to play a role monitoring the efforts of each G-20 nation. They agreed to expand the purview and membership of the Financial Stability Forum, a global group of bank regulators, so it could better coordinate policy responses to the banking sector.

Several officials mentioned the need to take aggressive steps to coordinate oversight of financial markets, including creating stronger capital requirements. The G-20 communiqué did not stress an immediate need to make changes to financial regulation. Some had expected a stronger commitment leading up to the meeting.

The Obama administration is working to finish a "White Paper" that will lay out in detail the types of regulatory changes it believes are needed to oversee U.S. financial markets in the future. These ideas could be released in two weeks when Mr. Geithner testifies before the House Financial Services Committee.

"We are going to be ambitious, but we are going to work with" other countries, Mr. Geithner said in the interview.