Source: Bloomberg

Group of 20 finance chiefs called for “credible” plans to withdraw economic stimulus as the recovery gains momentum and Greece’s fiscal turmoil highlights the risks posed by mounting government debt.

“The global recovery has progressed better than previously anticipated largely due to the G-20’s unprecedented and concerted policy effort,” the group’s finance ministers and central bankers said in a statement after meeting in Washington today. “We should all elaborate credible exit strategies from extraordinary macroeconomic and financial support measures.”

The need to persuade investors that order will be returned to public finances was underscored by Greece’s appeal today for emergency loans after a surge in its borrowing costs. The International Monetary Fund this week called rising government debt one of the biggest threats to the strengthening world economy.

“I don’t think there’s complacency among policy makers, but the question is whether they’re preparing for the worst-case scenario,” said Harvard Professor Kenneth Rogoff, a former IMF chief economist and co-author of a recent study of financial crises. “They seem to be hoping for the best.”

The G-20 recommitted to developing rules by the end of this year to improve the quantity and quality of bank capital with the intention of implementing them before 2013. It asked the IMF to do more research on how banks can cover the cost of future bailouts, papering over a split over whether a tax should be imposed. The statement made no specific comment on exchange rates.

Backdrop for Talks

Greece’s request for as much as 45 billion euros ($60 billion) in international aid this year set the backdrop for the G-20’s talks. It came a day after the yield on the nation’s benchmark two-year note topped 11 percent, the EU estimated its budget deficit reached 13.6 percent of gross domestic product last year and Moody’s Investors Service cut its credit rating.

The fiscal situation serves as a warning to many governments that they will soon need to pare the budget deficits run up during the worst global recession since World War II. The IMF estimates the debt of advanced nations will reach 115 percent of GDP by 2014, up from 80 percent before the crisis and close to the postwar record.

“We need to prevent sovereign risk from spreading to other nations,” Hiroshi Ogushi, Japan’s parliamentary secretary for finance, said in an interview in Washington.

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