Eye on Greece, finance leaders to attack debt
Sunday, April 25, 2010
WASHINGTON -- Financial leaders, with an eye on Greece, pledged Saturday to address the risks posed to the global recovery from high government debt.
But they also stressed that high unemployment in many countries remained a threat to a sustainable recovery from the deepest global downturn since the end of World War II.
The Greek debt crisis has dominated the weekend discussions among finance officials from the world's major economies.
The policy-setting panel of the 186-nation International Monetary Fund on Saturday cited signs that the recovery from the global downturn is gaining strength but also noted difficult challenges lie ahead in such areas as growing government debt burdens and lingering high unemployment.
"The worst is definitely behind us, but we are not out of the woods yet," Egyptian Finance Minister Youssef Boutros-Ghali, the chairman of the IMF panel, told reporters.
Treasury Secretary Timothy Geithner urged the Greek government, European officials and the IMF to "move quickly to put in place a package of strong reforms and substantial concrete financial support," according to a Treasury statement.
Geithner participated in a meeting at IMF headquarters Saturday morning which included Greece's finance minister, George Papaconstantinou, IMF managing director Domininque Strauss-Kahn and Olli Rehn, the European Commission's top economic official.
Greece is hoping to obtain loans of about $40 billion from the group of 16 European countries which, like Greece, use the euro as a common currency, and an additional $13.4 billion from the IMF.
Crippled by soaring borrowing costs, Greece on Friday made a formal request for the aid. Prime Minister George Papandreou declared in a televised address that his country's economy was a "sinking ship."
Canadian Finance Minister Jim Flaherty said Saturday that while he didn't have a view on the proper size of a rescue program for Greece, finance officials from some other nations, including some in Europe, have expressed concerns that the current level may not be sufficient.
"There is a concern about making sure that the package is enough so that it's a one-time event," he told reporters.
European and IMF officials have made clear that their support will carry a high price: putting Greece's fiscal house in order. Greece has already agreed to put in place an austerity program that cuts civil servants' pay, freezes pensions and raises taxes. But the country faces years of painful cutbacks and doubts about its long-term finances.
The austerity program has generated massive street protests in Greece and labor strikes.
Asked at the news conference whether he was concerned that the IMF was being "demonized," Strauss-Kahn said it would not be the first time that the IMF, which often delivers harsh economic remedies, has been cast as the villain.
But he said that today's IMF is a changed institution from the agency that generated anger for its austerity programs in previous crises around the world. IMF officials have said its current remedies are crafted with an eye to protecting the most vulnerable. The IMF is also striving to be more representative of the views of developing countries, not just rich nations that contribute the largest shares of support.
"The Greek citizens shouldn't fear the IMF. We are there to try to help them," said Strauss-Kahn, a former Socialist finance minister of France who has been mentioned as a possible French presidential candidate in 2012.
Strauss-Kahn dodged all questions about the specifics of the IMF program including when negotiations with the Greek government might be completed and the package submitted to the IMF board for approval. The IMF on Friday did pledge to move expeditiously and the expectation is that Greece will have the first portion of its loan in time to meet a large debt payment coming due on May 19.
The IMF policy discussions Saturday followed a daylong meeting of the Group of 20 major economies on Friday which includes the traditional Group of Seven economic powers -- the United States, Japan, Germany, Britain, France, Italy and Canada -- and emerging developing countries including China, Brazil, India and South Korea.
As usual, the discussions were taking place under heavy security with many streets around the IMF and World Bank headquarters closed. But unlike some years in the past which featured large demonstrations and clashes with police, this year's activities were small-scale and featured such events as a five-kilometer "Run on the Bank" race.
Most of the countries on the G-20 also have seats on the IMF's policy board. The weekend talks will wrap up Sunday with discussions of a steering committee for the World Bank, the IMF's sister lending organization and the world's biggest provider of development loans.
The discussions this weekend were designed to prepare the agenda for a meeting G-20 leaders including President Barack Obama which will take place in Canada in June. Among the changes triggered by the deep global recession, the G-20 has taken over as the key agenda-setting group for the global economy, a role before played by the G-7.
The G-20 leaders, at their last meeting in Pittsburgh in September, directed the finance officials to work to develop coordinated plans to reform financial regulations in an effort to prevent the financial meltdown that contributed to the deep recession, the worst globally since World War II.
However, both the G-20 discussions and talks Saturday underscored wide differences on the issue of financial regulations. Geithner noted that the United States is pushing ahead with financial reforms with the Senate scheduled to take up its version of the overhaul this coming week.
The finance officials were unable to agree on an IMF staff recommendation for the creation of two types of new taxes on banks to make sure that taxpayers are not saddled with the costs of resolving future financial crises.
Strauss-Kahn sought to play down the differences, saying the G-20 should still be able to meet a series of upcoming deadlines from presenting recommendations to the G-20 leaders in June to developing new global capital standards by the end of this year.
"Some countries want to implement some taxation on the financial sector. Some don't ... but everybody agrees that all this has to be done in a coordinated way," Strauss-Kahn said. He said the key principle was to make sure that any changes did not foster a race to the bottom in which global banks would move to countries with the weakest regulations.
Obama in January proposed a $90 billion tax on big banks to pay for losses from the financial bailout and both the House and Senate bills pending before Congress propose taxes to create funds that would pay the costs of future crises.
Associated Press writers Ana Azpurua and Christine Simmons contributed to this report.