MARSEILLE, France (Reuters) - Group of Seven finance chiefs pledged on Friday to make a coordinated response to a slowdown in the global economy but offered few specifics and differed in emphasis on Europe’s debt crisis.
The United States pressed Europe’s strongest economies to give “unequivocal” financial support to weaker euro zone states to overcome a debt crisis threatening world economic recovery, but Germany stressed the top priority of cutting deficits.
In joint “terms of reference” agreed after hours of talks in the French port city of Marseille, G7 finance ministers and central bankers signaled no shift in policy to try to revive flagging growth.
“We met at a time of new challenges to ... growth, fiscal deficits and sovereign debt... There are now clear signs of a slowdown in global growth. We are committed to a strong and coordinated response to these challenges,” they declared.
“Given the still fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustment plans while supporting economic activity, taking into account different national circumstances,” they said in an attempt to square reconcile austerity and growth.
But the thin statement, which a German government source said was issued at host France’s insistence to try to calm anxious markets, broke no new ground.
“We have to get away from the idea that there is only one solution for all.... It’s not rigor (austerity) versus growth,” French Finance Minister Francois Baroin told a news conference.
Yet there was a clear difference in tone between U.S. Treasury Secretary Timothy Geithner’s call for more generous aid for Europe’s debtors and German Finance Minister Wolfgang Schaeuble’s emphasis on cutting high deficits.
“I don’t think people were expecting a great deal and sure enough the G7 doesn’t appear to be delivering much in the way of concrete action,” said Brian dolan, chief strategist at Forex.Com in New Jersey.
A U.S. official said most of the meeting was devoted to the euro zone sovereign debt crisis.
“European officials fully understand the gravity of the situation there,” Geithner said. “The G7, alongside the International Monetary Fund, is committed to working with them to decisively address the crisis in Europe.”
The G7 statement voiced support for U.S. President Barack Obama’s $447 billion jobs plan and for Europe’s July 21 decision to beef up the powers of the euro zone’s EFSF bailout facility.
It said exchange rates should be determined by markets and pledged: “We will consult closely in regard to actions in exchange markets and would cooperate as appropriate.”
A shock announcement that the top German official at the European Central Bank is quitting in conflict with the bank’s policy of buying government bonds to support Italy and Spain laid bare deep rifts over how to manage the debt crisis.
The ECB confirmed chief economist Juergen Stark will retire nearly three years before his term is due to expire. His exit means Bank of Italy governor Mario Draghi will start his term at the ECB helm in November with a mountain to climb to restore its credibility in Germany, Europe’s biggest economy.
Mounting anxiety over Europe’s debt crisis and the fragility of its banks as well as concern over the U.S. economy and Washington’s political impasse over deficit reduction caused a big fall in world stock markets in recent weeks.
Differences between the economic problems facing the euro zone, Britain and the United States are complicating the task though, meaning one-size-fits-all solutions will not work.
IMF chief Christine Lagarde said in London before boarding a flight for Marseille that policymakers in advanced economies should use all available tools to boost growth and called for bold action to weather a “dangerous new phase” of recovery.
She also cautioned against too much fiscal consolidation in a climate of sputtering growth.
But the Marseille talks produced no agreement on coordinated monetary easing.
U.S. President Barack Obama’s new package of tax cuts and spending could lift U.S. growth by one to three percentage points in 2012 and add more than a million jobs if approved by Congress, which is far from assured.
In debt-ridden Europe, there is little scope for fiscal stimulus, and where there is some wiggle-room — in Germany and Britain — there is no political appetite for it.
With Asian economies deeply worried about the West’s debt crisis and slow growth, Japan voiced its concern and sought backing for its right to unilaterally intervene to counter safe-haven purchases pushing up the yen.
Finance Minister Jun Azumi said he believed Tokyo had gained understanding for its view.
Bank of Japan Governor Masaaki Shirakawa told reporters the debt problems in the United States and Europe were behind the rise in global economic uncertainty and must be tackled.
Lagarde said policymakers must act now, “and boldly”, giving her blessing to more quantitative easing by central banks and saying the challenge was to find a pace of adjustment that was neither too fast nor too slow.
She said countries facing market pressures must push ahead with urgent fiscal consolidation, while there was scope for slower action in countries not at the mercy of market forces.
“If growth continues to lose momentum, balance sheet problems will worsen, fiscal sustainability will be threatened, and the scope for policies to salvage the recovery will disappear,” she said.
Decisions by the European and British central banks this week to keep interest rates unchanged accentuated the gloom in Europe but neither indicated that a cut was imminent, while Federal Reserve Chairman Ben Bernanke gave no hint of new stimulus to boost the economy in a keenly awaited speech.
Additional reporting by Daniel Flynn and Claire Watson in Marseille, John Irish in Paris, Keith Weir in London, David Lawder in Washington and Leika Kihara in Tokyo; Writing by Mike Peacock and Paul Taylor