G20 agree to continue stimulus spending to aid recovery (Roundup)

By Andrew McCathie Sep 5, 2009, 16:56 GMT

London - Finance ministers from the Group of 20 (G20) leading economies agreed Saturday to continue stimulus spending programmes until an upturn in the global economy takes hold.

But in their joint declaration following the conference, the ministers stepped back from French and German proposals to cap bankers' bonuses, instead agreeing to a proposal to defer bonus payments until an executive's performance could be assessed.

Echoing the declaration, British Chancellor of the Exchequer Alistair Darling, who hosted the two days of talks in London, said signs of recovery are emerging, but noted that the G20 finance ministers remained 'cautious on the outlook for jobs and growth.'

As a result, Darling said the ministers agreed 'to implement our necessary support measures' through both monetary and fiscal policies.

Held in the staid surroundings of the British Treasury building in central London, the meeting had been called to take stock of moves to overhaul the global financial system, which had been called for by G20 government leaders.

But the final details on what was agreed in London Saturday are likely to hammered out at a G20 summit of government chiefs in about two weeks in the US city of Pittsburgh.

Hosted by US President Barack Obama, the Pittsburgh summit will be the third time that the G20 leaders have met since the implosion of the US investment bank Lehman Brothers 12 months ago sent shockwaves through the world economy.

Since the G20 leaders last met in April, signs have emerged that the world economy is starting to shake off what has been the deepest recession in about six decades.

And speaking at a press conference in London, US Treasury Secretary Timothy Geithner acknowledged that the unexpected improvements in the world economy could reduce the sense of urgency for pressing on with a makeover of the financial system.

But he told reporters: 'We are going to make sure we keep the pressure on.'

Papering over deep divisions between G20 governments over controls for executive pay, the finance ministers proposed that bonus payments should be deferred for up to five years to allow time to assess bankers' actions over the longer term.

That represents something of a victory for Britain and the US, which had been wary about restrictions that might threaten their financial centres in the City of London and Wall Street respectively.

It followed a push spearheaded by France and Germany to break up what they saw as the banking industry's bonus culture with new tough controls, arguing that generous executive rewards helped to trigger an increase in risk that paved the wave for the economic shakeout.

Speaking following Saturday's meeting, Darling said all bankers around the world had to be mindful that government support and taxpayers money had helped to shore up the banking sector in the face of the global financial storm.

'They have an obligation that their pay practices are fair,' said Darling, adding that executive rewards should also not encourage risk taking.

By continuing to support the roll-out of anti-crisis fiscal packages, ministers also rejected a rapid retreat from the 5- trillion- dollars in fiscal stimulus plans launched to counter the recession, which have helped to pull the global economy back from the brink.

Germany, France and Japan, which have already emerged from recession, have begun talking about the need to consider scaling back the massive stimulus plans, which have resulted in rising public debt levels.

At their meeting in London, G20 top finance officials laid aside differences on bank capital arrangements by agreeing to a Washington plan for banks to hold more and better quality capital requirements.

The ministers hope what they said in their statement was 'rapid progress in developing stronger prudential regulation' would undercut the risky lending practices which helped to fuel the economic crisis.

In addition to the world's leading industrial powers such as Germany, France, and Canada, the G20 also includes emerging powerhouse economies such as India, China, Russia and Brazil, which together represent more than 80 per cent of world output.

The London meeting also repeated earlier G20 calls for a sweeping overhaul of the voting rights of the International Monetary Fund and the World Bank to reflect the shift in global economic power to major emerging economies.