G8 sees economy still in peril, falters on climate

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.

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