SNAP ANALYSIS: Coordinated exit strategy raises more questions

LONDON (Reuters) - For all the sound and fury about getting tough on bankers and their bonuses, a deeper interest for financial markets from Saturday's G20 meeting lies in the pledge to coordinate the eventual withdrawal of emergency stimulus.

Having cut interest rates to record lows and thrown trillions of dollars into their economies, the G20 policymakers said it was too early pull the plug on the life support but they would develop "cooperative and coordinated exit strategies."

But they gave little detail about what that entailed, beyond saying they would work with the International Monetary Fund and Financial Stability Board on this and the approach would vary from country to country.

Asked if coordinated exit strategies meant central banks could hike interest rates in unison just as they did on the way down, British finance minister Alistair Darling simply said that countries don't have to do things on the same day but did have to work together to ensure they did not hamper recovery.

SO WHAT EXACTLY DOES COORDINATION MEAN?

Officials explain that it will be about exchange of information. Making sure one country knew what another was up to if it were about to take actions that could have far-reaching consequences.

The message is that the crisis required global action. In the same way, the unwinding will also have to be international, lest a piecemeal approach disrupts global markets.

For example, if one country was about to divest the stake it has taken in its banking sector, its partners would know this was about to happen to prevent any spillover disturbance.

It's a lot like the old idea that countries need to take each others policies into account when setting their own, which was the germ of the creation of the IMF's multilateral surveillance program to help ease the global imbalances.

But that didn't really work, and that is the problem.

WHAT TYPE OF COORDINATED ACTION IS NECESSARY?

While much has been made of coordinated action in the crisis, countries have as usual and unsurprisingly followed their own national interest -- fighting with each over whether stimulus was needed or how the financial sector should be regulated.

The G20 are only too aware that the world easily risks falling into the same global imbalances that have hung over the world economy for years. This is where they need to make change.

"Making the recovery sustainable does mean, in my view, avoiding unsustainable imbalances between countries," British Prime Minister Gordon Brown said at the start of the meeting.

"World growth has been driven, as everybody knows, by consumers in the United States and other deficit countries. Already in the United States, in Britain and other countries we are seeing savings increase," he said.

"It makes sense for countries with large current account deficits to boost exports. It makes sense also for countries with large current account surpluses to increase the demand for goods and services from other countries."

ARE G20 COUNTRIES PUTTING WORDS INTO ACTION?

So far there is little sign of that happening as countries like Germany and Japan remain focused on export-led growth while it may take years for China to create the kind of demand necessary in its own economy.

No wonder then so many policymakers are predicting only a slow recovery next year.