G-8 under pressure to restrain budget gaps
When Group of Eight finance ministers met on Friday, they were under mounting pressure from investors and central bankers to spell out plans to reverse record budget deficits before they spur inflation.
By Bloomberg |
PARIS: When Group of Eight finance ministers met on Friday, they were under mounting pressure from investors and central bankers to spell out plans to reverse record budget deficits before they spur inflation. As G-8 officials gather in Lecce, southern Italy amid signs of a global economic recovery, traders are selling government bonds on concern the flood of cash will fuel inflation if left unchecked. Federal reserve chairman Ben S Bernanke and European Central Bank president Jean-Claude Trichet warned last week that rising debt threatens financial stability.
That leaves policy makers on a tightrope: Cutting back spending or raising taxes now risks choking a recovery, while not doing so could threaten growth by pushing up borrowing costs. A solution may be to start outlining how they will unwind stimulus programs worth $2 trillion across the world���s largest economies when expansion takes hold.
���What the market wants to know is how the exit from stimulus will look when the time comes,��� said Mohamed El-Erian, chief executive and co-chief investment officer of Pacific Investment Management in Newport Beach, California, the world���s biggest bond fund manager. ���It���s not looking for an exit now, but it wants a credible plan.���
The G-8 ministers, including treasury secretary Timothy Geithner, will again meet on Saturday. The meeting will start work on devising ways to restrain budget gaps, yet won���t conclude with any immediate plans to do so because the world economy remains fragile, officials said.
That leaves policy makers on a tightrope: Cutting back spending or raising taxes now risks choking a recovery, while not doing so could threaten growth by pushing up borrowing costs. A solution may be to start outlining how they will unwind stimulus programs worth $2 trillion across the world���s largest economies when expansion takes hold.
���What the market wants to know is how the exit from stimulus will look when the time comes,��� said Mohamed El-Erian, chief executive and co-chief investment officer of Pacific Investment Management in Newport Beach, California, the world���s biggest bond fund manager. ���It���s not looking for an exit now, but it wants a credible plan.���
The G-8 ministers, including treasury secretary Timothy Geithner, will again meet on Saturday. The meeting will start work on devising ways to restrain budget gaps, yet won���t conclude with any immediate plans to do so because the world economy remains fragile, officials said.
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