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G20 adviser Vadera says 2011 danger point for growth

Published 12/08/2009, 05:28 AM
Updated 12/08/2009, 05:30 AM

By Matt Falloon and Steve Slater

HORSHAM, England, Dec 8 (Reuters) - The "danger point" for the global economic recovery will come at the start of 2011 once support measures are withdrawn, the adviser to the chair of the G20 group of developed and emerging nations said on Tuesday.

Former British government minister Shriti Vadera indicated the big challenge for the G20 next year would be getting countries such as the United States, Britain, Germany and France to agree on commitments on detailed financial regulation.

Most big economies have returned to growth following a downturn triggered by the worst financial crisis in living memory, but policymakers remain concerned about where future growth will come from and how long the recovery will last.

"My concern is very much around 2011 rather than 2010," Vadera, a former minister in Britain's business department, told a financial audience in southern England, pointing out many nations had already committed to stimulus measures next year.

"The issue is what is going to replace it in terms of private investment and private demand when it's withdrawn. The danger point comes not now, and not in 2010, but at the start of 2011."

Vadera, who is gearing up to advise next G20 chair South Korea, said the G20 may need to act quickly again if growth does not resume at that point, but high levels of government borrowing may put constraints on what can be done.

"We have to get through 2010 ... it's a subject that will come up but with the clear recognition that, at that point, fiscal sustainability will be paramount so the room for manoeuvre will be limited for all countries."

Vadera said next year's task would be persuading countries with differing views to flesh out details on regulatory principles agreed so far, such as leverage ratios for banks and how banks should prepare living wills.

"There is a huge degree of agreement of principles but we're only just starting what we actually mean by this," she said.

"The perception that the French and Germans are a lot tougher on financial regulation ... Well, the truth of the matter is that they are a lot easier around things like liquidity and leverage rations than the U.S. and the UK."

She said the forum was likely to continue to shy away from directly putting pressure on countries such as China over concerns about exchange rates.

"I suspect that it will not have the kind of publicly embarrassing piece on exchange rates," she said.

(Editing by Patrick Graham)

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