LONDON - The global economic crisis is not over and unemployment will keep rising in the months to come, the leaders of Britain, France and Germany warned on Thursday before a meeting of G20 policymakers in London this weekend.
In a letter to European Union colleagues, the leaders of the bloc's three biggest economies also promised binding measures to curb bank bonuses in a bid to appease public anger over financial sector excess that many blame for the world recession.
With interest rates at record lows and trillions of dollars thrown into their economies, the leaders said there was right now no alternative to keeping the extraordinary stimulus in place but plans should be made for its coordinated withdrawal.
We must be careful to avoid laying the foundations of new global imbalances, wrote British Prime Minister Gordon Brown, President Nicolas Sarkozy and German Chancellor Angela Merkel.
Therefore we should work on exit strategies to be implemented in a coordinated manner as soon as the crisis has ended.
Speaking in Frankfurt after euro zone interest rates were left unchanged at just 1 percent for the fourth month, European Central Bank President Jean-Claude Trichet agreed that now was not the time to tighten policy as recovery was not certain.
It is more of a bumpy road ahead. Uncertainty is high. Prudence and caution are still of the essence, he said.
His assessment will likely be shared by finance ministers and central bankers from the Group of 20 developed and emerging nations when they meet in London on Sept 4-5 to lay the groundwork for a leaders' summit in Pittsburgh.
Better than expected Q2 data, particularly in the euro zone, have surprised analysts and policymakers alike. On Thursday, the ECB upgraded its growth outlook for the euro zone.
And new forecasts from the Organisation for Economic Co-operation and Development also showed the world recession coming to an end faster than initially thought. But policymakers are worried that even if recovery comes, it may takes ages for normality to return with millions losing their jobs in the interim. GDP in Germany in Q2 was 5.9 percent lower on the year. In Britain, it was down 5.5 percent.
Labour markets will suffer the consequences of low capacity utilisation over the months to come, the leaders wrote.
BLAMING THE BANKERS
With rising unemployment likely to eat into their own poll ratings, the politicians are determined to have someone to blame and stressed that banks too cannot return to business as normal.
Our citizens are deeply shocked at the revival of reprehensible practices, despite taxpayers' money having been mobilized to support the financial sector, the leaders said.
They said the G20 leaders' summit in Pittsburgh should also deliver binding rules on limiting excessive bonuses though there was no explicit mention of any kind of extra tax -- an idea that has been mooted previously by the French and some charities.
Bonuses at banks, they proposed, should be deferred over time to discourage short-termism and be subjected to clawback in the event of things turning bad.
They also called on their finance ministers this weekend to look at enhanced regulation of systemically important banks and ways in which these institutions can be wound up if needed without shaking the financial system.
Other issues on the table for the G20 meeting are ensuring international institutions like the International Monetary Fund get the full resources promised to it at April's London summit, when the world was still in the grip of a major recession.
Dinner on Friday will discuss how the IMF and the World Bank can be reformed to reflect better the emergence of the new economic powers.
Representatives from Brazil, Russia, India and China will meeting on the sidelines of the meeting and U.S. Treasury Secretary Timoty Geithner is expected to join them.
The voice of the BRICs has grown stronger, and proof of that is that U.S. finance minister Geithner has asked to come to the BRIC meeting and to discuss a range of issues, a Russian delegation source told reporters in London.