LONDON -- British Prime Minister Gordon Brown said leaders of 20 rich and developing countries must start to sketch out the outlines of a new global economic order when they meet in Pittsburgh later this week, as well as making sure that the fledgling recovery sustains itself.
In a briefing Monday ahead of Thursday's Group of 20 meeting, Brown said it was important that longer-term issues, such as preventing huge financial imbalances in trade, savings and consumption, are tackled as the global economy recovers from its worst recession since World War II. Countries running surpluses, such as Germany, have suffered as badly as those with deficits during the recession as demand for their exports collapsed.
"We are looking at how we can put in place for the future the mechanism or path that can lead us to either making decisions about better ways of creating growth that is sustainable in the future, a better early warning system for the world economy about potential crises, a better way of resolving difficulties or imbalances around the world," Brown said.
Many of the world's leaders, including U.S. President Barack Obama and IMF head Dominique Strauss-Kahn, have spoken of the need for "rebalancing" the world economy. In essence, that means that the U.S. will have to consume less while it builds up its savings rate to bring its financial books into balance, while surplus countries, including dollar-rich China, start spending more to take up the slack left from lower U.S. spending.
"It's a compact for growth and jobs; it's a global compact and it's the first one that you would ever have and I believe there is substantial support for moving in this direction," Brown said.
"This new framework is the key to resolving issues where different continents can better work together to achieve the growth levels we need," Brown said.
In the nearer-term, Brown said more still needs to be done to make sure that the recovery in the world economy is firmly established.
He said the commitments unveiled in London in April at the last G-20 meeting have gone a long way to underpinning a global economic recovery in the last few months. Countries like Germany, France and Japan actually started growing again during the second quarter, albeit at anemic levels to the output shed in the preceding months.
And despite growing talk of the need for exit strategies from super-loose policies, Brown said the world economy is set for a bigger stimulus over the coming months than it has already had as previously approved spending begins to take effect.
"The stimulus that we have still got to give the world economy is greater than the stimulus we have already had, so I would say that over the next 15 months you will see America's stimulus higher than it was in the last few months because that is how it is projected to develop," he said.
"Germany's stimulus next year is higher than this year so I think you have got to remember that what we want to do is safeguard a recovery from a recession we feared would develop into a depression," he added.
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