Rich world prepares economy for war

The plan is believed to be based on a coordinated surge in government spending, financed by heavy borrowing, in an effort to stimulate economic growth.

If true, the proposal would be a significant expansion of efforts taken since Septermber 11, 2001, which have mainly involved repeated cuts in interest rates.

Ministers from the G7 - which comprises Canada, France, Germany, Italy, Japan, the UK and the US - is likely to discuss the plan in greater detail at a Paris meeting later this month.

High hopes

The G7, a loose association of countries rather than a tangible organisation like the International Monetary Fund, exists as a forum to discuss global problems.

With the addition of Russia, it has recently become the G8 - but the Russians are generally excluded from their economic deliberations.

The G7 has periodically intervened in the economy, most recently in 2000, when members coordinated intervention in the financial markets to bolster the euro and calm the soaring price of oil.

The initiative this time seems to be being taken by Germany, whose chancellor, Gerhard Schroeder, is a believer in interventionist economic policies.

It seems unlikely, however, that G7 members such as the UK and US would buy into a grand unified plan based on increased government spending.

Many economists are currently concerned that governments are spending too much, not too little.

And the efficacy of such programmes depends almost entirely on how extra government revenue is spent, something that may be beyond the scope of a rapidly-assembled G7 scheme.

Pluses and minuses

Another factor arguing against a set plan is that no one is quite sure what the worldwide economic effects of war would be on G7 countries.

Oil prices may rise, but they would fall just as far if Iraq were occupied quickly.

There are fears that consumer and commercial activity would slow, but the present uncertainty is seen a more severe limiting factor than the reality of war.

Indeed, many companies may be given a boost, and investors may rush to put their money into the relative safe havens of G7 financial markets.