Published June 15, 2009

Too early to scale back efforts to support financial system: US

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(NEW YORK) Despite growing signs that the world economy is stabilising, it is still too early to begin scaling back government efforts to support the global financial system, Timothy Geithner, the US Treasury secretary, said Saturday after a meeting of the Group of Eight (G-8) finance ministers in Italy.

'Where we have seen improvements, they are the result of the unprecedented scope and intensity of policy actions to support demand and financial repair,' Mr Geithner said in a statement. 'These early signs of improvement are encouraging, but the global economy is still operating well below potential, and we still face acute challenges.'

This week, the White House is expected to lay out a new regulatory plan aimed at curbing the excess of borrowing and risk-taking that is widely blamed for contributing to the crisis, with new rules aimed at markets in the United States as well as overseas.

Like the US, other large industrialised nations are also pushing for common rules on transparency, borrowing practices and other measures to better regulate the financial system.

Taking the name from the Italian town where Saturday's meeting was conducted, the ministers adopted what they called the Lecce Framework, identifying areas where they hope to achieve consensus on improving regulation of the international finance system.

New figures for industrial production released on Friday in Europe were worse than expected and underscored the view that Europe is still lagging behind the US and Asia in terms of recovery. The G-8 ministers, however, echoed the view of Mr Geithner that their economies are also showing signs of stabilisation.

Talk is already turning to what economists are calling the 'exit strategy' on how to cut looming deficits and rein in spending without leading back to recession.

The ministers said they 'discussed the need to prepare strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured'. They did not identify any particular measures, like cutting spending, raising taxes or reducing borrowing. Instead, the G-8 ministers said they had asked the International Monetary Fund to help plan exit strategies. -- NYT