MOSCOW – The world's economic crisis response team grappled on Friday with the prospect of more market volatility resulting from the United States, China and Japan charting a course towards recovery.
Finance ministers and central bankers from the Group of 20 nations, gathered in Moscow, were to call for greater clarity in policy 'messaging' after signals of a withdrawal of U.S. monetary stimulus caused a global sell-off in stocks and bonds, and a flight to the dollar.
G20 sources said a draft communique in the works would also urge China to encourage domestic demand-driven growth and allow greater exchange-rate flexibility as part of wider efforts to rebalance the global economy.
Beijing offered an early olive branch, announcing long-awaited interest rate reforms removing a floor on the rates banks may charge clients for loans, which in turn should reduce the cost of borrowing for companies and households.
"Global imbalances have narrowed with the crisis, but we need to continue with decisive policy action to make sure that they do not increase again when growth picks up," EU Economic and Monetary Affairs Commissioner Olli Rehn said.
The G20 also backed a fundamental tax rethink that takes aim at the loopholes used by multinational firms and responds to widespread anger among voters hit with higher tax bills to cover soaring national debts.
The forum took the lead in the 2008-09 financial crisis and now faces a multi-speed global economy in which only the United States appears to be nearing a self-sustaining recovery.
China, for years the engine of global growth, is suffering a slowdown amid doubts over the stability of its financial system, Japan has only recently embarked on a radical fiscal and monetary stimulus experiment, and Europe's economy is more stop than go.
Chairman Ben Bernanke's announcement that the Fed may start to wind down its $85 billion in monthly bond purchases sparked a panicky sell-off, particularly in emerging markets.
"There has been a kind of over-reaction of the markets," French Finance Minister Pierre Moscovici said. "So we are looking for the balance."
Investors were calmed by testimony to Congress this week by Bernanke, who is not coming to Moscow, though he said the exit plan from money-printing remained on the cards.
Clearer policy communication is "crucial for preventing serious volatility on financial markets", said Russian Finance Minister Anton Siluanov.
Negotiators working on a joint communique reconvened after a drafting session on Thursday night that sources said was less fraught than at the February G20 meeting in Moscow, when there was talk of a currency devaluation war.
Ministers will review the text over dinner.
The BRICS emerging markets caucus - Brazil, Russia, India, China and South Africa - also met on Friday. They were unlikely to progress on joint steps, such as a shared pool of forex reserves, to guard against capital flight.
The United States is beating its fiscal targets thanks to improving growth and Washington is putting increasing pressure on Europe to do more to foster growth.
Germany, in contrast, is seeking internationally agreed medium-term debt reduction goals.
G20 labor ministers held a joint session with finance ministers, putting the jobs crisis in Europe - where youth unemployment is above 50 percent in debt-strapped Greece and Spain - at the centre of the debate.
"We will maintain supportive macroeconomic environments, which are conducive to job creation, investment and business development, in order to allow the private sector to play its role as a driver of employment and growth," the ministers said in a statement afterwards.
The European Union's employment commissioner, Laszlo Andor, told Reuters investment in jobs was vital for maintaining social peace and emerging from years of austerity.
"If in the name of competitiveness and internal devaluation you just compress wages constantly, you also kill demand and you can kill the recovery," Andor said.
The G20 released a tax action plan drawn up by the Organisation for Economic Co-operation and Development (OECD) that said the existing system didn't work, especially when it came to taxing companies that trade online.
The tax plan is one of the major 'deliverables' that will go before the summit of G20 leaders being hosted by President Vladimir Putin in St Petersburg in early September.
Russia, the first big emerging nation to host the annual presidency of the G20, finds itself in an awkward political spot.
G20 delegates arriving in Moscow ran into a protest over the jailing of a prominent Russian opposition politician. Alexei Navalny, who organized protests against Putin's election for a third Kremlin term last year, was sentenced to five years in prison for theft in a case that drew international condemnation.
Navalny was released on bail on Friday pending an appeal.
"The rally and the traffic jams are causing meetings to be postponed," said one European diplomat. "But we fully understand the democratic right to protest."
(Reporting by Lidia Kelly, Maya Dyakina, Jan Strupczewski, Gernot Heller Tetsushi Kajimoto in Moscow, Anna Yukhananov in Washington, Se Young Lee in Seoul, Tom Bergin in London, Alonso Soto in Brasilia, Leigh Thomas in Paris.; Writing by Douglas Busvine/Mike Peacock)