By Reed V. Landberg and Emma Ross-Thomas
Nov. 7 (Bloomberg) -- U.K. Chancellor of the Exchequer Alistair Darling urged the Group of 20 nations to maintain stimulus measures for their economies to cement a recovery from the worst recession in six decades.
“I hope we can agree we need to maintain our support for our economies until the recovery is established,” Darling told counterparts at the opening of the G-20 talks in St. Andrews, Scotland today. “Whilst clearly confidence levels have returned we’re still in a position where there’s a lot of uncertainty.”
Officials want to avoid derailing the recovery by withdrawing the stimulus too soon or by leaving it so long that the resulting debt spooks investors into pushing up market interest rates. The International Monetary Fund says the debt ratio of the advanced G-20 nations could be 40 percentage points above the pre-crisis level by 2014, threatening to push up borrowing costs as much as 2 percentage points.
The yield on the 10-year U.S. Treasury note has risen 139 basis points to 3.5 percent since the start of the year.
The fragility of the rebound was exposed yesterday by a report showing the U.S. unemployment rate soared to a 26-year high of 10.2 percent in October.
Darling’s call for continued action is likely to find support when G-20 finance ministers and central bankers including U.S. Treasury Secretary Timothy Geithner and European Central Bank President Jean-Claude Trichet release a statement after their talks conclude about 3 p.m.
Substantial Period
“This is not a self-sustained recovery,” Swedish Finance Anders Borg told Bloomberg Television yesterday in St. Andrews. The G-20 must continue “expansionary policies for a substantial time period.”
The G-20, which accounts for about 85 percent of the global economy, is also set to discuss funding for policies to tackle climate change after the European Union estimated developing countries need 100 billion euros ($148 billion) a year by 2020.
German Finance Minister Wolfgang Schaeuble said yesterday the G-20 would try to “at least make a little step forward in the area of financing climate protection.”
Doubts are growing as to whether a full agreement can be reached at a United Nations summit in Copenhagen next month. Yvo de Boer, the UN supervisor for climate talks, said in a Nov. 5 interview that too little progress has been made to conclude a treaty at the summit, and it may take another year. European Commission President Jose Barroso said Nov. 3 “there’s not time” to reach a treaty agreement ahead of the summit. The EU and US have yet to say how much aid they may give.
Urgency
Darling said he wants “commitment and urgency” on climate change, even amid diverging views.
“I am aware that around this table there are some different views,” he said. “It will be difficult negotiating.”
Divisions emerged yesterday over exchange rates as Chinese central bank Governor Zhou Xiaochuan deflected calls from European and Japanese officials to let its currency appreciate. Zhou said in an interview yesterday that “the pressure from the international community to allow yuan appreciation is not that big.”
His comments came after ECB President Jean-Claude Trichet said an “orderly and progressive appreciation” of currencies including the yuan would be “welcome.”
China has kept a lid on its currency since July 2008, making it track the dollar lower as the U.S. currency lost 15 percent against a basket of currencies since March. Japanese Vice Finance Minister Yoshihiko Noda said yesterday it’s “desirable for the yuan to be flexible.”
Too Weak
Carlo Bozotti, chief executive officer of STMicroelectronics NV urged European policy makers to talk down the euro currency, saying on Oct. 21 that “the dollar is too weak.” Sanofi-Aventis Chief Executive Officer Chris Viehbacher said the weaker dollar is a “problem” for France’s largest drugmaker, while Bank of Canada Governor Mark Carney said last month the strength of the Canadian dollar against its U.S. counterpart was a risk to growth.
Yuan forwards rose this week, with the twelve-month non- deliverable security rising 0.3 percent to 6.6305 per dollar, signalling appreciation of 3 percent. The contracts rose 0.4 percent this week.
To contact the reporters on this story: Reed Landberg in St. Andrews at landberg@bloomberg.net; Emma Ross-Thomas in St. Andrews at at erossthomas@bloomberg.net
