Need for exit strategy sure to trouble G20

By Brian Love - Analysis

ROME (Reuters) - Germany failed to secure harder commitments from Wednesday's G8 meeting on a post-crisis "exit strategy" for cutting public deficits, but the issue is sure to return to haunt leaders in the months ahead.

Chancellor Angela Merkel made little of the matter in public but one official said she would make dealing with the cost of the huge stimulus committed since last year a "big issue" at a G20 summit in the United States in late September.

Doing so is easier for the Germans, now reporting signs that the economy is emerging from recession and little touched by the banking and real estate calamities that have hounded policymakers in Britain and the United States.

For now the consensus for most of the rest is to stay the course with vast injections of government money until the economy can cope without life support, and only thereafter turn to repairing the damage to public finances.

Government deficits are forecast by the IMF to double this year to around 7 percent of GDP for advanced economies, and nerves about bond markets and a possible ballooning of the cost of funding deficits mean action will eventually be needed.

Coordinating recovery efforts however remains a challenge for the G8 industrial powers, as well as between them and the large emerging market economies such as China and India, also in Italy for a three-day summit.

"There are still differences over the issue in the G8," said Andrei Bokarev, a Russian official involved in the summit. "Some states believe it is too early for exit strategies."

All the leaders managed to agree on, said Carl Weinberg of High Frequency Economics, is that the economy is in a mess.