The G7 leaders have come to an agreement that there is a need to continue providing support to their economies with fiscal stimulus as the whole world’s economy is in doldrums right now due to COVID-19 pandemic and it needs that magic wand to stabilise.
This narrative saw support from all leaders of the Group of Seven nations including Angela Merkel of Germany which has traditionally opposed heavy borrowing to spur growth, a position it has relaxed in the face of the COVID-19 crisis.
The US President Joe Biden’s administration and its allies are pushing the agenda of spending with Treasury Secretary Janet Yellen urging her G7 colleagues in February to “go big”.
“There was broad consensus across the table on continued support for fiscal expansion at this stage,” the source told Reuters, adding that Biden, British Prime Minister Boris Johnson and Italy`s Mario Draghi showed immense support.
The International Monetary Fund has always asked the Group of Seven countries and others to continue fiscal support measures.
The source further added that the G7 leaders believed long-term policies should be in place for ensuring the health of public finances in the future, echoing the position of their finance ministers who met earlier this month in London.
Draghi, president of the European Central Bank from 2011 to 2019, reiterated that the rich major Western economies required “long-term fiscal anchor” to provide assurance to investors and avoid a rise in market interest rates that could hurt the recovery, the source said.
The leaders further believed a post-lockdown rise in inflation in many countries would be temporary if these things are dealt properly, the source said.
“There was a bit of discussion on inflation but the feeling was that it was temporary,” the source said.
G7 leaders further gave impetus to the idea of minimising unemployment such as retraining and offering support for younger workers, a proposal supported by Canada’s Justin Trudeau, the source said.
At the opening of the meeting, Johnson said the leaders needed to be careful not to “repeat the mistakes of the last great crisis, the last big economic recession of 2008 when the recovery was not uniform across all parts of society.”