Financial Times FT.com

Atlantic stimulus rift grows

By Tony Barber in Brussels, Alan Beattie in Washington and George Parker in London

Published: March 10 2009 21:11 | Last updated: March 10 2009 23:04

Disagreements between the European Union and the US over how to combat the global recession widened on Tuesday as EU governments made clear they had little appetite for piling up more debt to fight the collapse in output and jobs.

Finance ministers from the 27-nation bloc insisted in Brussels that it was doing enough to support world demand and did not need at present to adopt another fiscal stimulus plan, as Washington is urging.

The US-European differences are casting a shadow over next month’s summit in London of leaders from the G20 group of advanced and emerging economies, an event to be attended by Barack Obama on his first visit to Europe as US president.

It also emerged that Gordon Brown, UK prime minister, was struggling to organise the summit. Britain’s most senior civil servant claimed it was hard to find anyone to speak to at the US Treasury. Sir Gus O’Donnell, cabinet secretary, blamed the “absolute madness” of the US system where a new administration had to hire new officials from scratch, leaving a decision-making vacuum.

“There is nobody there. You cannot believe how difficult it is,” he told a conference of civil servants.

The critical condition of Europe’s economy was underlined by official data on Tuesday showing French industrial output fell at a year-on-year rate of 13.8 per cent in January, the worst fall since records started in 1991. Despite the gloomy figures, stock markets around the world rebounded strongly. In New York, the S&P 500 index surged 6 per cent by mid-afternoon, while the FTSE Eurofirst 300 index of leading European shares gained 5.3 per cent.

France, Germany and Italy, the eurozone’s three biggest countries, are anxious that the 16 countries sharing the euro should not run up ever-bigger budget deficits and public debt, potentially threatening the stability of the single currency area.

Mr Brown is more enthusiastic about a possible second stimulus package, and his government is placing less emphasis than Germany on the need for a prompt return to balanced budgets once economic recovery is under way.

Even so, the UK signed up to the joint EU finance ministers’ statement, which said: “The focus should now be on swift implementation of planned fiscal stimulus packages to avoid that the recession becomes entrenched. Once the recovery takes hold, an orderly reversal of the macroeconomic stimuli is warranted.”

Ben Bernanke, chairman of the US Federal Reserve, warned on Tuesday against expecting too much from the G20 summit on April 2. “I think it’s asking too much for a meeting like that to come out with detailed proposals in many different areas,” he said. “I think the better goal for a meeting of leaders would be, as much as possible, to establish some principles that would guide reforms around the world.”

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