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G-8 agrees economy is bad, but differs on what to do

World leaders can't agree on whether to tackle debt or recession first, look ahead to G-20 meeting in September.

By Staff writer / July 8, 2009

Protesters rallied in front of the World Bank office in Manila Wednesday, demanding that the world's top eight economies cancel all debts from developing nations. The G-8 leaders are meeting in Italy and discussing the global economic crisis.

Bullit Marquez/AP

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Washington

Here’s a news flash: The leaders of the globe’s richest countries all agree that the state of the world economy is not good.

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Heads of state meeting at the G-8 conference in Italy concurred on July 8 that “significant risks” remain to world economic health, despite months of stimulus spending and other recovery efforts by governments from the US, to Europe, to China.

So are President Obama, German Chancellor Angela Merkel, British Prime Minister Gordon Brown, and the other members of this exclusive club plotting more joint moves to counter the downturn? Not at the moment.

The G-8 summit failed to produce a coherent strategy for further action, due to widely divergent views about the nature of the current crisis, and the value of further stimulus efforts.

“That is pretty much what we’d expected,” says Steven Schrage, a former senior State Dept. official who is now an international business expert at the Center for Strategic and International Studies. “They had really lowered expectations about a major [economic] breakthrough.”

In terms of international economic policy, this week’s G-8 meeting is a kind of interim event, says Mr. Schrage -- a bridge between April’s meeting of the larger group of G-20 nations in London, and September’s G-20 summit in Pittsburgh.

The G-20 meetings include official representatives from developing nations such as India and China, which will play a large role in helping the world pull out of global recession.

“More coordination globally could help juice this economy forward,” says Schrage.

Not all world leaders would frame the issue in that way. Chancellor Merkel wanted this week’s G-8 to focus on exit strategies -- methods of getting out from under the massive debt incurred by the US and other nations in saving financial institutions and attempting to jump-start domestic economies.

This debt load could fuel inflation and cause further significant damage in the years ahead, in Merkel’s view.

President Obama, Prime Minister Brown, and others would prefer to focus on pulling out of the recession before tackling the debt problem. The G-8 skated over this disagreement by noting that it exists, in diplomatic language.

“Exit strategies will vary from country to country depending on domestic economic conditions and public finances,” said a draft statement from G-8 leaders.

Fiscal stability is a mid-term problem, said Mike Froman, US Deputy National Security Advisor for International Economic Affairs, at a July 8 press briefing. Soon it will be time to start cutting back on massive deficit spending. But as of July 8 that time has not arrived.

At the G-8, leaders “said it’s time to prepare exit strategies, but not necessarily time to put them in place,” said Mr. Froman.

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