Europe spots recession's end. Stimulus goes on.

The "great recession" won't be as deep as once feared in the developed world. It's ending in the United States. It's over in the euro zone, Jean-Claude Trichet of the European Central Bank said Thursday.

So when will governments and central banks throttle back their stimulus efforts? Well ... it's not clear.

That's because the assessment of recessions is like a row of dominoes. Everyone quickly agrees when they're falling. It takes far more time to reach consensus on when they've been properly set back up.

Investors are the quickest to spot recoveries (but they often mistake blips for turnarounds). Central bankers take more convincing. After a long lag come the politicians (who, understandably, don't want to tell unemployed constituents that things are improving).

Where are we now? The global recession will have a smaller-than-anticipated impact on the world's largest economies and recovery is likely to arrive earlier than had been expected, the Organization for Economic Cooperation and Development reported Thursday.

So far, the central bankers and politicians remain on the same page about what to do. On Thursday, British Prime Minister Gordon Brown, French President Nicolas Sarkozy, and German Chancellor Angela Merkel sent a letter urging the G-20 grouping of developed nations to continue with their stimulus plans. On the same day, Mr. Trichet, Europe's central banker, left interest rates unchanged at their current low rates and reaffirmed that it was not yet time to stop the stimulus. He and the political leaders were all reiterating on one side of the Atlantic what the White House and Congress and Fed Chairman Ben Bernanke have been saying on the other.

Yet, the language Thursday suggested that central bankers' views could begin to diverge from the politicians' in the months ahead (the underlining is mine).

Trichet: "The latest information supports our view that there are increasing signs of stabilization in economic activity in the euro area and elsewhere. This is consistent with the expectation that the significant contraction in economic activity has come to an end."

The letter from the three European leaders: "While cyclical indicators point to economic stabilization, the crisis is not over...."

Trichet: "In finalizing their 2010 budgets and medium-term fiscal plans, governments must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances."

The leaders' letter: "[W]e should work on exit strategies to be implemented in a coordinated manner as soon as the crisis has ended."

Of course, the economic future looks uncertain – bumpy, to use Trichet's term – so deciding when to withdraw the stimulus will be tricky. At some point, however, central bankers will have to make the move – whether it's politically popular or not.

There's a reason central banks are set up to be independent. We'll see in coming months how independent they really are.
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