L’AQUILA, Italy, (Reuters) – Group of Eight leaders agreed yesterday the world economy still faced “significant risks” and it was too early to unwind measures put in place to end the deepest recession in living memory.
But efforts to get an undertaking from the 17-nation Major Economies Forum for a 50 percent reduction in greenhouse gas emissions by 2050 stumbled on resistance from China and India, in a setback to efforts to secure a new U.N. climate pact.
Progress on the environment was impeded by Chinese President Hu Jintao returning home due to unrest in northwestern China in which 156 people have died. Before he left, summit host Silvio Berlusconi spoke of Chinese “resistance” on climate goals.
“There is agreement (among G8 countries) but China is still sceptical. We have to verify tomorrow with India and China the level of agreement that we can reach,” Berlusconi said.
Major powers leaders met in L’Aquila, a mountain town wrecked by April’s earthquake and a fitting backdrop to talks on a world economy in deep recession.
In a joint statement, G8 leaders cautioned that “significant risks remain to economic and financial stability” while “exit strategies” from pro-growth packages should be unwound only “once recovery is assured”.
The Group of Eight — United States, Germany, Japan, France, Britain, Italy, Canada and Russia — badly underestimated the economic problems facing them when they met last year and were much more cautious this time around.
“All were of the view that the crisis is a long way from being over. With luck, we have reached the bottom,” German Chancellor Angela Merkel told reporters.
Not mentioning China’s push for a debate about a long-term alternative to the dollar as global reserve currency, the G8 statement talked only of global imbalances.
“Stable and sustained long-term growth will require a smooth unwinding of the existing imbalances in current accounts,” the statement said.
China complains that dollar domination has exacerbated the global crisis and worries that the bill for U.S. recovery poses an inflation risk for China’s dollar assets, an estimated 70 percent of its official currency reserves.
Analysts said the decision not to refer to this directly could remove a destabilising factor on currency markets.
U.S. President Barack Obama was to chair today’s meeting of the 17-nation Major Economies Forum, whose members account for about 80 percent of global greenhouse gas emissions.
MEF ministers holding last-minute preparatory talks failed to close the gap between U.S. and Europe on the one hand and emerging powers like China and India on the other hand on the goal of halving global greenhouse gas emissions by 2050.
A draft MEF document dropped any reference to this and aimed instead for agreement on the need to limit the average increase in global temperature to 2 degrees Celsius (3.6 degrees Fahrenheit) since pre-industrial times.
G8 leaders also endorsed the 2 degree Celsius cap.
Cindy Baxter of Greenpeace said the G8 was “watering down climate ambitions”, a bad omen for December’s U.N. climate talks in Copenhagen seeking a successor to the Kyoto pact, since emission cuts are necessary for limiting temperature rises.
Developing nations, present in large numbers at the expanded G8 summit with more than 30 world leaders invited, argue that they have to consume more energy to end poverty and that rich nations must make deep emission cuts of their own by 2020.