Warning of recession redux given to G20

OTTAWA — It’s what Prime Minister Stephen Harper didn’t say to the Group of 20 negotiators on Thursday that weighed heavily in the meeting room.

OTTAWA — It’s what Prime Minister Stephen Harper didn’t say to the Group of 20 negotiators on Thursday that weighed heavily in the meeting room.

Harper took the unusual step of publicly addressing the G20 top bureaucrats — known as ‘sherpas’ because they do most of the tough slogging ahead of the encounter — who are in Ottawa in advance of the June summit that Canada is hosting.

He carefully defined the summit’s agenda, laid out his priorities and told them clearly what it would take to make the summit a success.

But he didn’t repeat the warning of a double-dip recession that leapt off the pages of the background paper Ottawa distributed to the sherpas before the meeting.

“The global economy has not yet fully recovered and the premature withdrawal of fiscal and monetary stimulus could risk a double-dip recession and higher unemployment,” warned the paper obtained by The Canadian Press.

The fear of another virulent round of recession is hanging over the heads of the sherpas, forcing them to focus almost exclusively on near and medium-term economic issues, insiders say.

“We can’t lose sight of what remains our biggest collective challenge: the recovery is by no means fully assured,” Harper told the sherpas.

That’s the closest he came to repeating the double-dip warning in public.

With the European Union in an uproar over Greece’s financial crisis, with debt in the United States and the United Kingdom soaring and with a sense that China is stubbornly sticking to its troublesome exchange rate regime, there is a risk that unless the emerging and advanced economies in the G20 get the recipe right, recovery will not take hold as hoped.

That recipe, according to Harper, is to make sure stimulus efforts continue just long enough to entrench growth, but not long enough to build up unmanageable debt that would spook financial markets and send the world into another tailspin.

The G20 also needs to resist protectionism, Harper said.

And it needs to crack down, in a unified way, on financial markets and the banking system. In other words, countries in Europe and the United States should stick to the program agreed upon at previous meetings and stop going off in all directions on banking reform.

“This has become a matter of urgency,” Harper said about banking regulations. “We must get this done within the agreed time frame.”

But Harper’s emphasis on sticking to a narrowly focused and practical economic agenda at the G20 has a dual purpose.

He has resisted including climate change, international development and security issues in the G20 agenda, preferring to leave those issues for the Group of 8, which will hold its summit in Huntsville, Ont., the day before the G20 meeting. Canada has made no secret that it wants to keep the more exclusive G8 a strong force in international relations, despite some resistance from emerging market countries and others not included in the elite eight.

As the host of the first summit of the G20 as a permanent body for global decision-making, Harper’s definitions will influence the scope of the fledgling organization for the future.

Still, even the narrow goals Harper set out for the G20 will be challenging, analysts say. Getting emerging market countries and advanced countries to agree on how to “exit” from the massive stimulus programs will be tricky, said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

Some countries, especially in Asia, are well on their way to recovery and have started withdrawing stimulus measures. Others, especially in Europe and the United States, are only showing tentative signs of growth and still need stimulus to tide them over, he said.

For the G20 to make sure the entire global economy is not knocked off kilter again by some countries removing stimulus too fast, or others removing it too slowly, the group needs to figure out a way for all members to put their plans on the table in a very public way, Alexander added. That way, financial markets and consumers can maintain their confidence.

“The message is clear: countries with large fiscal deficits must develop transparent and credible plans as to how they will eventually put their house in order,” he said in his latest global forecast. “The doctor calls for a strict fiscal diet, but a crash diet could prove extremely detrimental due to the fragile state of the economic recoveries.”

The sherpas wrap up their meetings on Friday, and hope to make significant headway on what can be actually announced at the June summit.

A sherpa is the person a government designates to guide a country through all the heavy lifting leading up to a summit. Normally, sherpas are bureaucrats who rarely speak publicly, and usually hold their meetings in private. They quietly clear the way for leaders to make the big decisions and bold announcements at the summit.

Canada’s G20 sherpa is Len Edwards, deputy minister of foreign affairs and international trade. He is working with Tiff Macklem, an associate deputy minister at the Finance Department, who is Canada’s top official for the G7 and has spearheaded global talks on how to reform banks and financial regulations in the wake of the international crisis.

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