Group Think

President Obama arrives in Canada with a call for economic growth.

Image: Getty

Leaders of the G-8 leading economies closed their meeting in Canada with a warning—the global economic recovery is on shaky ground. Looking ahead to meetings of the G-20 later on Saturday and on Sunday, the G-8 sounded a cautionary note.

“This economic crisis exposed and exacerbated vulnerabilities already embedded in integrated global economies,” the group said in a statement. "Progress is being made, through the work of the G-20, towards the sustainable recovery of our global economic and financial system.”

Leaders remained split over what to do about the economy, though. President Obama says the U.S. and other countries should be ready to ramp up spending and to maintain low interest rates to boost the economy, as needed.

Deficit hawks such as German Chancellor Angela Merkel say it's time for the world to get serious about deficit reduction, lest the entire global economy go the way of Greece. "There is a common position in the G-8 that the time of huge expenditure programs ended and that we have to introduce exit strategies. Perhaps there are different positions on the speed for introducing exit strategies," Merkel said Saturday.

In the U.S., the bias is toward aggressive treatment. In a pre-summit letter to the G-20, President Obama wrote that G-20 leaders must "provide the policy support necessary" to maintain economic growth in the event that "confidence in the strength of our recoveries diminish." Obama said "we should be prepared to respond again as quickly and as forcefully as needed to avert a slowdown in economic activity."

The meetings, which begin Friday with the more exclusive G-8 and continue for the larger G-20 during the weekend, may influence the economic and financial environment for large and small businesses and consumers. If G-20 leaders misjudge the risks of inflation or recession and fail to set a path toward sustainable growth and economic stability, businesses will pay the price of higher interest rates, tighter credit or weak demand.

Exporting businesses—including many smaller firms—will be vulnerable to G-20 policy on currency.

As The Christian Science Monitor notes, "World debt, both public and private, now amounts to $222.5 trillion, equal to 362 percent of global GDP, writes David Rosenberg, an economist at Gluskin Sheff, a Toronto wealth management firm."

The budget hawks of the G-20 want deficits cut by 50 percent or more by 2013. The debt problems in Greece, Spain, and Portugal, not to mention the U.S. itself, unnerve financial markets and raise the risk of inflation and higher interest rates as investors demand more compensation for their risk.

Other issues on the table include a global bank tax, which is unlikely to win support beyond a few countries such as France. "We have to have a framework to impose a tax on banks and we will launch it. We will not impose a bank tax on others, but we want a framework .... and we will fight to get it," French President Nicolas Sarkozy said on Saturday.