German minister urges G20 to soon reduce use of stimulus measures

August 31, 2009

German Finance Minister Peer Steinbrueck arrives to the weekly cabinet meeting in Berlin, August 5, 2009.  BERLIN, Aug. 31 (Reuters) German Finance Minister Peer Steinbrueck urged colleagues from other G20 nations as soon as possible to start reducing fiscal measures used to tackle the global financial crisis.

In the letter dated Aug. 27, Steinbrueck wrote that policy measures taken in the past months had been successful in stabilising financial markets and the global economy.

“It is of vital importance that we develop internationally coordinated exit strategies,” he wrote to fellow finance ministers and central bankers from the G20 largest developed and emerging economies, who meet in London on Sept. 4 and 5.

“Then, when the right time comes — that is, when the recovery has established a firm footing — we must show the same degree of international coordination in putting these strategies into action,” Steinbrueck said.

He added an attachment to the letter, in which he made a proposal that read: “The reduction of fiscal measures that were introduced to tackle the crisis should take place as early as possible in order to reduce deficits to a sustainable level.”

In the attachment, he also called for “a credible announcement that monetary policymakers will react to possible inflationary pressures by monetary tightening”.

Governments across the world have spent trillions of dollars on economic stimulus packages to combat a deep recession caused by the worst financial crisis since World War Two, prompting debate about how economies can be weaned off this support.

Removing the stimulus too soon could see economies slump again. Leaving it in place too long could risk stoking inflationary pressures.

A German government source said on Monday he did not expect foreign exchange to take up much of the talks at this week’s G20 meeting in London.

“You never know what finance ministers and central bankers will discuss,” the source said, adding: “On the basis of the preparations, I wouldn’t expect that foreign exchange or foreign exchange regimes will take up a lot of the debate.”
At a meeting in April in London, leaders of the G20 agreed to extend regulation and oversight “to all systemically important financial institutions, instruments and markets” including systemically important hedge funds.

In his letter, Steinbrueck wrote: “We must use the window of opportunity blown open by the crisis to stabilise the world’s financial system on a lasting basis.”

The German source added that the financial regulation issue was “a clear focus” for the government and for Steinbrueck for a summit of G20 leaders in Pittsburgh on Sept. 24-25.

“It is our goal that we implement completely the agreements on financial market regulation that were made in London,” the government source added.

Turning to the domestic German economy, the source said that although there were signs of tighter lending conditions for some corporate sectors, data showed there was “no widespread credit crunch.”

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