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Bank reform clouds Davos summit
Davos summit ends with recovery warning after banking "bust-up" over global reform.
Last Modified: 05 Feb 2010 03:34 GMT
The banking issue has clouded the four-day Davos meeting in Switzerland [AFP]

The world economy is recovering but remains fragile and dogged by huge deficits, officials have said at the end of a Davos summit clouded by divisions over banking reform.

Asia is leading the resurgence after the worst crisis for decades with China returning to double-digit growth, however, the United States and Europe remain dogged by unemployment and the crisis over Greece.

"The situation is better, but fragile," Dominique Strauss-Kahn, the International Monetary Fund (IMF) chief, said on Saturday.

"We have to go ahead strongly in the financial sector reform, much more rapidly than has been done until now.

Bank regulation

"The fiscal sustainability problem is going to be one of the biggest problem. We'll have to deal with this for five, six or seven years, depending on the country," he said.

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Criticism over US plans to curb risk-taking by banks again took centre stage on the last day of the World Economic Forum.

The meeting brought together British and French finance ministers Alistair Darling and Christine Lagarde, European Central Bank chief Jean-Claude Trichet and the heads of private banks.

"There's going to be regulation, they [the bankers] understand that," Barney Frank, the US congressman, said.

"The political leadership certainly in the United States is going to go ahead with tough, sensible regulation."

The banking issue has clouded the four-day Davos meeting, following French President Nicolas Sarkozy's opening address in which he supported US President Barack Obama's bank reform plans.

At the same time there has been cautious optimism about the outlook for global recovery after the financial crisis of the last 18 months.

Asian growth

Chinese and Indian officials have announced their country's growth rates of nearly nine and seven per cent respectively, and the US hailed Friday's unexpected 5.7 per cent gross domestic product (GDP) growth figure.

"Balancing between the recovery process that has to continue, the reform that needs to be maintained and the restoring of public finances is a tough line to draw"

Christine Lagarde, French economy minister

But unemployment remains a problem in the US and Europe, which both have a jobless rate of around 10 per cent, despite a return to overall growth.

"What we're seeing in the United States is a statistical recovery and a human recession," Larry Summers, Obama's chief economic advisor, said.

Warnings of a "double dip" recession, where recovery fades back into a new slowdown, have arisen in Davos as leaders mull exit strategies from stimulus packages agreed to prevent a full-blown depression last year.

Christine Lagarde, the French economy minister, told the AFP news agency she followed a "three Rs" principle: recovery, reform, and restoring public finances.

But she said timing was crucial.

China's yuan peg?

"Balancing between the recovery process that has to continue, the reform that needs to be maintained and the restoring of public finances is a tough line to draw," she said.

A senior Chinese banker meanwhile said that Beijing could move on the issue of its currency's exchange rate once other countries start to withdraw their stimulus packages.

China has been under fire for keeping the renminbi [Chinese yuan] weak against the dollar, a strategy which critics say is aimed at keeping Chinese exports competitive.

"If global [partners are] ready to do exit strategy, China is ready," Zhu Min, the deputy head of China's central bank, told the Davos forum.

Source:
Agencies
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