G20 pledge to support economy until recovery firms

By Jan Strupczewski

ST ANDREWS, Scotland (Reuters) - Group of 20 finance ministers and central bankers pledged on Saturday to prepare strategies to end emergency support for their economies, but to keep the aid flowing until recovery was assured.

The world's biggest economies -- the European Union, the United States and Japan -- are either expected to or already have emerged from recession in the third quarter.

This has prompted a discussion on when to start cutting back on the trillions in public support pledged to cushion the worst economic downturn since World War Two to maintain credibility of fiscal policies with markets and consumers.

Officials from the world's 20 biggest developed and emerging economies said at the end of talks in the small Scottish town of St. Andrews that while the economy has improved, recovery was still uneven and depended on policy support.

"While we will continue to provide support for the economy until the recovery is secured, we also commit to develop further strategies for managing the withdrawal from our extraordinary macroeconomic and financial support measures," they said.

But some central banks like the European Central Bank have already taken their first steps toward the exit from crisis liquidity support and ECB President Jean-Claude Trichet said on Saturday the U.S. Federal Reserve had similar plans.

"We had an occasion to tell what was our understanding of the progressive phasing-out of the non-conventional measures that have been decided on both sides of the Atlantic, but also by other central banks," Trichet told a news conference.

"It appears also that on the other side of the Atlantic the same kind of progressive, gradual phasing out of non- conventional measures is envisaged," he said.

Other central banks would follow at the right time, he said.

"All of us, to my knowledge, have said that when needed, and where needed, there would be the phasing out of unconventional measures in a timely and gradual fashion ... All central banks, and certainly the ECB, are doing all that is necessary, but no more than is necessary," he said.

PACEMAKER

While the ECB last Thursday would not dispel market expectations that it would drop its one-year liquidity operations next year, the Bank of England extended its quantitative easing program, although at a slower pace.

European countries, encouraged by positive growth forecasts for the next two years, are considering 2011 as the deadline for launching deep deficit cuts to bring public finances back under control and head off huge debts for future generations.

U.S. Treasury Secretary Timothy Geithner made clear it was too early to remove public support for the economy even though the focus has shifted together with the recovering growth.

"It is too early to start to lean against recovery," Geithner told a news conference. "If we put the brakes on too quickly we will weaken the economy and the financial system... and the ultimate cost of the crisis will be greater."