GYEONGJU, South Korea (MNI) – U.S. Treasury Secretary Timothy
Geithner’s proposal to set limits on trade surpluses and deficits as a
percentage of a country’s GDP merits consideration, Financial Stability
Board chairman Mario Draghi said in comments for release on Saturday.

“It is what we have on the table in terms of addressing in a
cooperative fashion the global imbalances that could become a threat to
the recovery. As such it deserves close attention, consideration and
discussion,” Draghi said.

Geithner’s proposal, which would reportedly limit a country’s trade
imbalance to 4% of its GDP, has been received cooly by some G20 members,
including Japan and Germany. German Economy Minister Rainer Bruederle
suggested that such a measure reflected the kind of thinking associated
with planned economies.

Draghi, who is also governor of the Bank of Italy, downplayed
emerging rifts among G20 member countries, asserting that they are
working closely together to fend off remaining downside risks to the
global recovery, which he said remains on track.

“The world recovery is in place,” Draghi said. “It is true that it
is weaker than it was after previous crises. It is true that it is
uneven in the sense that emerging markets are recovery faster than the
rest of the world and some countries in Europe are recovering faster
than other countries in Europe. And it is true that it is fragile in the
sense that it is exposed to a series of what you call downside risks.
But it is in place.”

“The other kind of positive observation I have is that the
financial sector is healing, it is gradually healing,” Draghi added.

Remaining downside risks include “fragilities in the financial
sector, the persisting — actually increasing — global imbalances,” as
well as “extraordinary capital flows to emerging market countries” and
threats of protectionism, Draghi said. The risks also include the
outlook for further progress on fiscal consolidation and potential
problems “caused by too low interest rates for too long a time,” he
added.

The central theme of this weekend’s G20 meeting here is how to cope
with these fragilities, Draghi said, adding that the “the route which
has been taken is through cooperation rather than antagonism.”

“The G20 have expressed and are expressing the will to cooperate on
all these grounds and to make the G20 once again the primary forum for
cooperation,” he asserted.

Asked whether he supported strong language on foreign exchange
developments in the final G20 statement given that risks of a currency
war remained one of the key topics during the meetings, Draghi said:

“I am not in a position to respond to this question. I know you
like strong language because that makes news, but one should ask the
question what sort of language is best to achieve the desired
objectives, and the desired objectives are eventually a reduction of
global reductions and less volatile exchange rates.”

–Frankfurt bureau tel.: +49-69-720142. Email: jtreeck@marketnews.com

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