Geithner Says ‘Too Soon’ for G-8 to Pull Back on Economic Aid
Treasury Secretary Timothy Geithner said Group of Eight governments should maintain efforts to pull the world economy out of the worst slump since World War II and set aside concerns about budget deficits for now.
“Growth should remain the principal focus,” Geithner said in a press conference today after a meeting of G-8 finance ministers in Lecce, Italy. “It is too early to shift toward policy restraint.”
The Obama administration and other G-8 governments are facing calls to rein in spending on concern that swelling budget deficits will fuel inflation. The yield on benchmark 10-year Treasury notes reached 4 percent on June 11, the highest since October.
G-8 ministers, in a statement issued after their meeting, said they discussed the need to plan for a withdrawal of more than $2 trillion in emergency spending programs and bank aid, once a recovery sets in. The ministers offered their most upbeat outlook since the collapse of Lehman Brothers Holdings Inc. last September deepened the global banking crisis.
Geithner repeated the U.S. commitment to bring its budget deficit down to a “sustainable level” starting in fiscal year 2011. For the year that ends Sept. 30, the Congressional Budget Office forecasts the deficit to reach a record $1.845 trillion, almost four times the previous fiscal year’s $454.8 billion shortfall.
‘Storm Is Receding’
Geithner, acknowledging that “the force of the economic storm is receding,” said the global economy still must contend with “acute challenges.” His comments, while putting more emphasis on the need to maintain spending measures, echoed the G-8 statement, which said there are “signs of stabilization,” even as “the situation remains uncertain.”
The G-8 met a day after reports showed consumer confidence rose for a fourth month in the U.S. in June and sentiment in Japan climbed to a 14-month high in May. U.S. stocks advanced this week, erasing the Dow Jones Industrial Average’s 2009 loss.
The G-8 statement didn’t address the issue of so-called stress tests to measure the ability of banks to withstand a deeper economic downturn. A U.S. official told reporters that all of the G-8 nations are privately committed to such tests, which have been carried out in the U.S., though their approaches differ.
Geithner is preparing to unveil the Obama administration’s agenda for overhauling the U unsecured personal loans with bad credit.S. financial regulatory system. That plan, to be released next week, will include proposals to make it easier to handle the failure of a big international financial firm, said the official, who spoke on condition of anonymity.
Housing Markets
The U.S. official told reporters that the plan doesn’t include a review of the government’s role in the housing markets. That topic, including what to do with Fannie Mae and Freddie Mac, the two government-sponsored mortgage companies that are now in conservatorship, will be the subject of further review, the official said.
The Treasury also doesn’t have any plans to launch new financial-rescue efforts under the $700 billion Troubled Asset Relief Program. That program’s coffers received a boost last week when the Treasury announced 10 banks would repay $68 billion to exit the rescue program, which makes more room under the effort’s budget cap.
Geithner said there are early signs that the world economy is on a path to return to health. Major economies are shrinking more slowly, financial markets have improved, and global trade is showing “signs of life,” he said.
Not all countries will emerge from recession at the same time, Geithner said. He said G-8 nations agreed on the need to balance budgets in recovery, once the current challenges are past.
Different Speeds
“The world’s going to come out of this at slightly different speeds,” he said, citing the U.S. and emerging markets in Asia as areas showing early signs of recovery.
Financial stability and establishing economic recovery will remain a concern in Europe, Geithner said in a television interview with the BBC. Governments there may take a different approaches in pursuit of “what works,” he said.
“It’s definitely a question for the Europeans,” Geithner said. “We all have a responsibility for the strategies we adopt.”
The G-8 is composed of the U.S., Japan, Germany, France, U.K., Canada, Italy and Russia. Its ministers met to shape an agenda for when their leaders convene July 8-10 in L’Acquila, Italy.