G8 nations consider exit from credit crisis

LECCE, Italy (Reuters) – The world’s rich nations,  heartened by signs the credit crisis is easing, have started to  consider how to unwind rescue steps for their economies once  recovery is certain, their finance ministers said yesterday.

Meeting in southern Italy, the ministers described their  economies in the most positive terms since the collapse of  Lehman Brothers nine months ago ushered in the world’s worst  financial crisis since the Great Depression of the 1930s.

“The force of the economic storm is receding. There are  encouraging signs of stabilisation across many economies,” said  US Treasury Secretary Timothy Geithner as finance ministers of  the Group of Eight nations ended two-day talks.

A surge in long-term government bond yields over the past  several weeks shows financial markets fear huge sums of money  poured into economies through drastic stimulus will ultimately  fuel inflation and cripple state finances.

But ministers clearly differed over how quickly the world  should start rolling back huge state spending plans and hiking  interest rates. And there was continued disagreement over other  aspects of the crisis, especially testing the health of banks.

The meeting’s final joint statement said they  had asked the International Monetary Fund to help them analyse  possible ways of ending economic stimulus policies.

A G8 source, who declined to be named, told Reuters that the  IMF report would probably be presented at the fund’s October  annual meeting in Istanbul. Most private sector economists do  not expect any major tightening of fiscal and monetary policies  in the developed world before next year.

Pressure has been building in the G8, particularly from  fiscally conservative nations such as Germany and Canada, for  plans to wind down stimulus as soon as it is no longer needed —  “exit strategies” that would prevent market interest rates from  climbing high enough to threaten economic recovery.