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Friday, 5 October, 2001, 12:02 GMT 13:02 UK
G7 plans to tackle slump
Paul O'Neill and Alan Greenspan want help from Europe
Paul O'Neill and Alan Greenspan want help from Europe
Finance ministers from the world's leading industrial countries are meeting in Washington this weekend to consider how to tackle terrorism and the global economic slowdown.


No matter how big a stimulus we will have in the United States, it will be less successful if the Europeans do not play along

Christian Weller, Economic Policy Institute
The meeting of the G7 representatives had been scheduled to take place at the end of September at the annual meeting of the IMF and World Bank, but was postponed after that meeting was cancelled.

Top of the agenda will be plans to revive the flagging world economy through interest rate cuts and more government spending.

But differences are expected to emerge between the United States, which has already announced a $75bn economic recovery package, and European leaders, who are reluctant to add to their budget deficits and would prefer to use interest rate cuts to stimulate the economy.

Return of Keynes

Central banks around have already cut interest rates in the wake of the terrorist attack, with US rates now at a 40-year low of 2.5%.

But the US wants more aggressive action to help boost growth, especially in Europe.

"This needs to be a worldwide recovery. The US economy has been carrying most of the rest of the world, especially in the last year..we need to all pull together," US Treasury Secretary Paul O'Neill said on Thursday.

Economists, including those at the World Bank and IMF, are concerned that the rules that govern spending in the eurozone are too strict.

"I am sure that President Bush and other Americans understand that no matter how big a stimulus we will have in the United States it will be less successful if the Europeans do not play along," commented Christian Weller of the Economic Policy Institute.

European caution

However, leaders of Europe's biggest economy, Germany, have expressed reluctance to take part in any joint stimulus package.

Hans Eichel, Germany's finance minister, said that "generally, such programmes do not bring much," and the German Chancellor, Gerhard Schroeder, has repeated his backing for the growth and stability pact, which obliges member countries to bring their budgets into balance or surplus in the medium term.

And French finance minister Laurent Fabius also insisted that the eurozone countries would be unwise to abandon the tough rules that have kept inflation and interest rates low.

"It wouldn't be reasonable or efficient to change the stability pact... it will have a negative effect on our economies, particularly long-term interest rates," he said.

Mr Fabius praised the action of the European Central Bank in cutting interest rates by half a point after the attack, and said that, with inflation now contained, he hoped there were be more rate cuts. .

Terror funds

The US will also be spearheading a renewed effort to combat money laundering.

It may consider setting up a special task force, according to John Taylor, US Treasury undersecretary for international affairs.

The effort to cut off financing for terrorists "requires complete coverage" and "it may be necessary ... to think outside the box," he added.

A US Senate committee has approved tough new laws on overseas banking which had previously been opposed by leading Republicans.

And the European Parliament moved on Wednesday to speed legislation on the freezing of terrorist assets throughout the EU.

Mr Fabius said that "the fight against terrorism is also a fight against pessimism," adding that coordinated action to "find every black hole" will be necessary.

The Group of Seven countries are the United States, Japan, Germany, France, Britain, Italy and Canada.

The finance ministers and central bankers will be joined during part of the discussions by Russian officials, including finance minister Alexei Kudrin, in a show of international solidarity.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Nick Childs
"There was no agreement on a set recovery plan"
See also:

17 Sep 01 | Business
US and ECB cut rates to stem panic
04 Oct 01 | Business
Bush package calls for tax cuts
02 Oct 01 | Business
Analysis: The Fed's next move
02 Oct 01 | Business
Fed cuts rates for ninth time
06 Oct 01 | UK Politics
Brown's push for global money laws
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