Developed nations debate how to restore growth

MARSEILLE, France — The financial leaders of the world’s most developed economies were wrangling Friday over how to revive a faltering economic recovery at a time when interest rates are already low and government debt is high.

The so-called Group of Seven economies — the U.S., Canada, Japan, the U.K., France, Italy and Germany — are all facing a similar challenge. The recovery that began a little over a year ago is already running out of steam but governments’ ability to boost growth is hampered after the financial crisis pushed up their deficits.

The solutions offered by the finance ministers and central bankers gathering in Marseille, France, differ wildly.

As President Barack Obama on Thursday proposed a $447 billion plan to create jobs, Treasury Chief Timothy Geithner, in an opinion piece in the Financial Times, pushed countries with lower debts to slow down consolidation to give the world economy a much-needed boost.

Yet, whether that argument will gain much traction in Marseille is questionable.

Germany, which weathered the financial crisis much better than most other developed economies, has already ruled out scraping cost cuts in favor of stimulus. Just days before Geithner’s piece in the Financial Times, German Finance Minister Wolfgang Schaeuble argued in the same newspaper that austerity was the only way of getting the eurozone’s struggling economies growing again.

Most other European countries have less of a choice when it comes to reviving their economies with extra spending.

Of all the G-7 states, Italy has been most embroiled in the debt storm. Its government debt, some 120 percent of economic output, is among the highest in Europe and its interest rates have jumped in recent weeks as investors fear that it may face a similar fate as fellow euro countries Greece, Ireland and Portugal.

But bailing out Italy, as the eurozone has done with the other three stragglers, would likely overwhelm the currency union and the government in Rome is currently pushing massive new spending cuts through parliament.

The U.K., which is outside the eurozone, has also embraced a strategy of austerity, although its central bank has taken a more expansive route than its eurozone counterpart, pumping billions of pounds into the British economy.

“We will stick to the deficit reduction plan we have set out,” Chancellor of the Exchequer George Osborne said Friday in London, before heading off to Marseille. “It is the rock of stability on which our economy is built,” Osborne added.

But Christina Lagarde, the head of the International Monetary Fund Christine Lagarde, who was also in London, warned that “consolidation, if it happens too quickly, will hurt the economy and worsen job prospects.”