G20 will discuss exit plan from fiscal stimulus

Published on Saturday 19 September 2009 13:46

WORLD leaders are this week expected to agree an "exit strategy" for their unprecedented stimulus programmes amid signs of an upturn in the global economy.

Leaders of the Group of 20 nations (G20) including Prime Minister Gordon Brown and US President Barack Obama are meeting in Pittsburgh this week to discuss how they can work together in withdrawing the billions of pounds of state support pumped into their respective economies over the past year. The pressure is now on leaders to prove that they have a concrete exit plan for when the global economy shows signs of staging a full recovery.

"Leaders will agree to coordinate on any talk of exit strategies going forward," a source close to the summit said. "They will agree to use the words 'exit strategy' more and more."

The thorny issue of bankers' pay will also be high on the agenda, with European leaders in particular pushing for an agreement on stricter rules governing bonuses. The US has shown signs in recent weeks that it is prepared to join Europe in reining in the risky banking practices that led to the near collapse of the global financial system last year.

Obama's chief economic adviser, Lawrence Summers, recently sparked hopes that Washington was prepared to pursue a harder line on financial pay when he told a conference in Washington that remuneration structures must be redesigned to avoid a repeat of the worst banking crisis since the Great Depression of the 1930s.

"Properly designed compensation practices constitute an important measure in ensuring safety and soundness in our system," he said.

So far the US has been reluctant to agree to bonus caps or limits as desired by some European leaders. But the Federal Reserve is currently understood to be working on a set of sweeping rules to limit the risk appetites of traders.

German chancellor Angela Merkel is already piling the pressure on her fellow G20 leaders to produce concrete results at the summit on Thursday and Friday. G20 summits are often criticised for turning into talking shops.

"It is very important that we get concrete results that go well beyond what was agreed in London (in April]," she told a news conference in Berlin.