United front with pledges of strength but no surprises

ANALYSIS:AGAINST THE sort of febrile background that seems now to accompany every meeting of global economic policy-makers, the news late on Friday night that the G7 had decided to change plan and issue a joint statement on the world economy set off a mild flurry in the Palais du Pharo in Marseille.

The unexpected slowdown in global growth-rates, weeks of market turbulence and – just hours after the summit began – the news that ECB chief economist Jürgen Stark was to step down early, all gave added significance of the meeting of finance ministers and central bankers.

Conscious of divisions between delegations over the way forward as well as an informal agreement that the G7 should not overshadow the G20 – now the main economic decision-making group – French officials had earlier ruled out issuing a communiqué.

It appears Friday’s drama changed their minds. The meeting overran by two hours – according to the French side, this was because German finance minister Wolfgang Schäuble asked them to return to the talks table to “clarify” matters – but in the end there were no surprises.

The statement (officially called “the terms of reference” and thereby less binding than a formal communiqué) affirmed their commitment to a “strong and co-ordinated” international response to slow growth and market tensions and pledged that “all necessary actions” would be taken to restore calm.

Yet it also repudiated the idea of one-size-fits-all policy prescriptions, echoing participants’ views that the sort of grand initiatives seen at the height of the credit crunch in 2009 were not on the way. The crux of the debate – discussed at length, according to the French side – is how to strike a “delicate balance” between stimulating growth and fiscal consolidation.

On the eve of the summit, President Barack Obama had unveiled a massive $447 billion job-creation package to inject life into America’s slowing economy. On the other side of the Atlantic, though, even Britain and Germany – the only two big economies on the continent not to have been targeted by the markets over the summer – have ruled out slowing their fiscal tightening plans.

In the end, the statement said merely that G7 members “must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible fiscal frameworks”.

Speculation had swirled in some quarters that the G7 might flag a co-ordinated monetary stimulus involving quantitative easing, but it is understood that possibility was not even discussed.

Another topic that did not arise at the plenary session was the news that Stark was stepping down from the ECB executive board three years before the end of his term. On the sidelines, the news was on everyone’s lips.

In the early hours of Saturday morning, scores of journalists pressed into a tiny briefing room to hear from ECB president Jean- Claude Trichet and EU economics commissioner Olli Rehn. “Jürgen Stark is a very old and dear friend of mine,” Trichet said. “We have worked together for 18 years. He took his decision for personal reasons and I have thanked him profoundly for all he has done.”

The ECB president did not directly respond when asked whether Stark’s departure was linked to the bank’s purchase of government bonds, but he strongly defended the policy and said Stark had always been “totally loyal to the institution”.

He declined to say whether he tried to persuade him to stay.