Group of Seven finance chiefs pledged to restore confidence to financial markets and growth to the world economy, stopping short of spelling out what new policies they would implement to meet those goals. G-7 officials meeting in Rome this weekend said in a draft statement that the downturn will “persist” through 2009 and that stabilizing the world economy is their “highest priority.” The full effect of individual stimulus measures will “build over time.” The final communiqué will be released later today. “We reaffirm our commitment to act together using the full range of policy tools to support growth and employment and strengthen the financial sector,” said the draft statement, which was obtained by Bloomberg News. G-7 officials arrived yesterday as reports showed Germany’s economy contracted the most in 22 years in the fourth quarter and U.S. consumer confidence neared its lowest since 1981. With the worst global slump since World War II battering state finances, International Monetary Fund Managing Director Dominique Strauss- Kahn said in Rome he expects more nations to need emergency aid. That’s putting governments and central banks under greater pressure to reverse the malaise and U.S. Treasury Secretary Timothy Geithner yesterday demanded “exceptional measures” from his counterparts. “More is better,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. “People have had their confidence shattered.” The G-7 officials will continue talks today before releasing a final statement at about 2:30 p.m. local time and briefing reporters. At a Loss Finance ministers and central bankers are still at a loss on the best course of action 18 months after the credit crisis broke out. While Geithner is pressuring colleagues for more action to boost the global economy, German, French and Canadian officials raised questions about his rescue plan, which commits up to $2 trillion to reviving lending and tackling toxic assets. Canadian Finance Minister Jim Flaherty said in Rome the proposals are “less than clear,” echoing comments by Germany’s Peer Steinbrueck. French counterpart Christine Lagarde said she wants Geithner to “clarify the modalities, the calendar, the way he’s going to implement his plan.” Investors have complained Geithner hasn’t fully outlined whether banks saddled with illiquid debt will be forced to fail, how tainted assets will be removed from their balance sheets and what will be done to stop falling house prices. Geithner’s response is that he won’t rush his flagship policy. Exceptional The G-7 called the actions they have taken to fight the turmoil “exceptional,” noting their efforts ranged from boosting liquidity in markets and bolstering capital in banks to slashing interest rates and easing fiscal policy. “We will continue to work together and to cooperate to avoid undesirable spillovers and distortions,” the officials said. Amid signs some are attempting to shield domestic companies and workers from the fallout, the G-7 said it “remains committed to avoiding protectionist measures, which would only exacerbate the downturn.” An economic stimulus package passing through the U.S. Congress contains a “Buy American” provision, while France is demanding carmakers keep production at home in return for aid. Papering over differences sparked by a weaker pound and a stronger yen, the G-7 singled out the yuan by saying China’s efforts to boost its economy should lead to further gains in its value. The group repeated its traditional message that “excessive volatility” and “disorderly movements” in exchange rates must be avoided. Geithner Questions Geithner will also have questions of his own about whether foreign governments and central banks are doing as much as the U.S. to tackle the crisis. Deutsche Bank AG calculates that the U.S. stimulus will swell GDP by about 3.6 percent, more than double what the European plans amount to. While the Federal Reserve has cut its benchmark interest rate to as low as zero, the European Central Bank’s is still 2 percent. U.S. National Economic Council Director Lawrence Summers said in a Bloomberg Television interview in Washington that Europe, China and Japan are “probably not” doing enough to aid the world economy. “Extraordinary times call for exceptional and complementary measures by all,” Geithner’s office said yesterday. The G-7 oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.

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