Economic gloom piles pressure on G7 finance talks

Host country France is calling for a coordinated response as anxiety mounts over Europe's debt crisis and the fragility of its banks

G7 finance chiefs meet on Friday under heavy pressure to take action to revive flagging economic growth in rich nations and calm the biggest confidence crisis in financial markets since the global credit crunch.
Host country France has called for a coordinated response from the Group of Seven industrialised nations after mounting anxiety over Europe's debt crisis and the fragility of its banks caused a big fall in world stock markets in recent weeks.
Differences between the economic problems facing the United States, Britain and euro zone 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 must have the conviction to tackle today's challenges, including with unconventional measures, and cautioned against too much fiscal consolidation in a climate of sputtering growth.
A source in Brussels has said the G7 would likely agree to keep monetary policy accommodative, slow fiscal consolidation in states where that is possible, and implement structural reforms.
No communique will be issued after the talks, something French Finance Minister Francois Baroin said would make for freer discussions. He told the daily Le Figaro each G7 country should adopt economic measures to suit its situation.
"In terms of the direction to take between stimulus and budgetary consolidation, some are in favour of a uniform action," Baroin said. "For my part, my tendency is to look for what is most adapted to each country's situation."
The G7 finance ministers and central bankers will sit down from mid-afternoon in the Mediterranean port city of Marseille.
A working dinner will be followed by briefings from around 9:15 p.m. local time by the French, German, Canadian and Japanese delegations and European Central Bank President Jean-Claude Trichet.
U.S. Treasury Secretary Timothy Geithner said on Thursday that it was "imperative" to bolster growth. The OECD called for "strong signals" from the G7 and urged central banks to keep interest rates low and consider other forms of monetary easing.
With Asian economies deeply concerned about the West's debt crisis and slow growth, Japan is also expected to speak out on the euro zone debt crisis and may also voice concerns over the strength of the yen and reserve the right to unilateral action.
Finance Minister Jun Azumi said late on Thursday it would ask the group for its understanding on its intentions to counter speculative moves in the yen.
Lagarde said countries 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.
"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.
A Morgan Stanley research note speculated central bankers might announce some kind of coordinated monetary easing as soon as over the weekend.
But while decisions by the European and British central banks on Thursday to keep interest rates unchanged accentuated the gloom in Europe, neither indicated that a move was imminent.
Wall Street also closed sharply lower on Thursday after Federal Reserve Chairman Ben Bernanke gave no indications of new stimulus to boost the economy in a keenly awaited speech.
"The G7 meeting may induce some book squaring ahead of the weekend," Unicredit said in a research note. "However, despite speculation about new coordinated forex intervention, a standard final statement remains the most likely outcome."
Fears the global economy may be in its most difficult period since the 2008 collapse of investment bank Lehman Brothers have added significance to Friday's talks but there has been little evidence of urgent, coordinated action by policymakers so far.
While Europe wants to keep its commitment to austerity, the United States is closer to the International Monetary Fund's position that fiscal stimulus is needed.
U.S. President Barack Obama announced a $447 billion jobs package of tax cuts and government spending on Thursday that attempts to jump start the stalled economic recovery and avert another recession.
In a Financial Times opinion piece on Thursday, Geithner said that while a repeat of the massive coordinated fiscal stimulus efforts of 2009 was not possible, decisive action was needed to deal with a bleaker rich world growth outlook.
The Organisation for Economic Co-operation and Development forecast on Thursday that growth across the G7 economies would slow to just 0.2 percent in the last quarter of 2011.
"With respect to three months back the growth scenario looks much worse, one would say that growth is stagnating," said OECD chief economist Pier Carlo Padoan.
The G7 has struggled to retain significance compared to the larger G20, which includes major emerging market powers like China and Brazil, but being smaller means it can agree more swiftly on action where needed.
The OECD's Padoan said G7 finance chiefs risked sending the wrong signal if they did not use Marseille as an opportunity to indicate they are ready to take action if growth slows further. Global stock markets were again lower on Friday.