G8 finance chiefs dampen hopes of early recovery

“We must remain vigilant to ensure that consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals,” they said following two days of talks in southern Italy.

US Treasury Secretary Timothy Geithner said there was no real turnaround yet. “I don’t think we’re at the point yet where we can say we have a recovery in place,” he said,adding: “It’s too early to shift towards policy restraint.” Geithner said the global economy was still “well below potential” and encouraging growth should still be “the main focus of policy” for world powers. There have been calls from countries like Germany for major economies to start reducing huge deficits and spending approved to stimulate growth.

“The G8 meeting was characterised by ill-concealed disagreement on the key issues of banks stress testing and of developing concrete strategies for unwinding policy stimulus,” said Unicredit bank analyst Marco Annunziata. International Monetary Fund chief Dominique Strauss-Kahn was also downbeat,saying: “We have to stay very careful,recovery is weak… We have to think about exit strategies but before the exit strategy we have to exit the crisis.” Strauss-Kahn also warned global unemployment would peak in 2011.

French Finance Minister Christine Lagarde meanwhile pointed to “early signs of an economic recovery but said that these remained ‘fragile’.”

“We’re still in uncharted territory,” said Italian minister Giulio Tremonti.

There were also rifts over “stress tests” to check on the financial stability of crisis-hit European banks,with Washington and London in favour but Berlin warning that they could undermine economic confidence. “In Europe we haven’t begun speaking about stress tests,” Tremonti said.