World leaders aimed for a common target on Thursday of securing the economic recovery, but disagreed over how best to reach it.
With two days to go before the Group of 20 summit convenes in Toronto, officials tried to downplay differences between the United States and Europe over how quickly to shift from crisis-fighting mode to budgetary belt-tightening.
“That’s the delicate balance that we need to try to strike this weekend,” Canadian Finance Minister Jim Flaherty said.
His US counterpart, Timothy Geithner, said each country needed to decide what policy mix made sense to ensure both growth and fiscal responsibility.
“Our job is to make sure we’re all sitting there together, focused on this challenge of growth and confidence because growth and confidence are paramount,” he said in an interview with BBC World News America.
The G20 club of rich and emerging economies joined forces at the height of the global financial panic and poured an estimated $5-trillion into stimulus spending, emergency loans and bank guarantees, helping to ward off a global depression.
The group still has a long and difficult to-do list, including forging consensus on new rules about how much capital that banks must hold, and making sure national financial regulatory reforms do not clash on a global scale.
The cost of fighting the financial crisis and recession left gaping holes in government finances, and Greece’s debt troubles have focused Europe’s attention on the need to shrink budget deficits before investors lose patience.
European Commission President José Manuel Barroso said Europe could no longer afford to borrow and spend, and must repair budgets in order to rebuild confidence for growth.
“It will not be a change overnight but there is no more room for deficit spending,” Barroso told a news conference in Toronto.
The United States wants to make sure European countries — Germany, in particular — do not remove government supports too quickly because that could derail the recovery.
US stocks fell on Thursday on concerns over the durability of the economic rebound.
President Barack Obama, pushing Washington’s pro-growth, line, said “surplus countries” — often code for Germany and China — must find ways to stimulate growth. But he also acknowledged that countries including the United States with medium- and long-term deficit problems would have to address them.
“Not every country is going to respond exactly the same way, but all of us are going to have responsibilities to rebalance in ways that allow for long-term, sustained economic growth,” Obama said in Washington during an appearance with Russian President Dmitry Medvedev.
White House economic adviser Lawrence Summers, in an interview with Reuters, also stressed that growth would be key, but said it was not simply a matter of choosing between austerity and expansion.
“There obviously is an importance in having a growth strategy, but I think it’s too simple to think of growth strategies only as running budget deficits or printing money,” he said.
In Europe, senior officials were in no mood to back down on their plans to cut spending.
Saying she expected “controversial discussions” in Toronto over Europe’s budget priorities, German Chancellor Angela Merkel insisted Berlin would forge ahead with its biggest program of fiscal cutbacks since World War II.
European Central Bank President Jean-Claude Trichet dismissed the idea budget cuts could torpedo the fragile economic recovery that is taking hold.
“The idea that austerity measures could trigger stagnation is incorrect,” Trichet told Italian newspaper La Repubblica, describing the German budget plans as “good” and repeating calls for more fiscal discipline in the 16-nation euro zone.
Merkel, who aims to save €80-billion in the next four years, told ARD television that sustained growth could only be guaranteed through getting a grip on deficits and debt.
“I and the EU will argue this position. There are others who are not yet so convinced of this exit strategy,” she said.
The G20, which includes the world’s biggest economies and two-thirds of its population, holds its summit in Toronto on Saturday and Sunday. It will be preceded by a meeting on Friday and Saturday of the G8, composed of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.
Downtown Toronto’s downtown banking district has seen business drop off as heavy security is mounted. Canadian police said on Thursday they had arrested the driver of a car near the meeting site who was carrying a chainsaw, crossbow and fuel containers.
Economic policy has not been the only issue dividing the G20, which has also seen its unity tested by reforms to the banking sector.
European proposals for global taxes on banks and financial transactions have run into opposition from countries like Canada that say their banks are in good health.
European countries are concerned that planned new rules requiring banks to set aside more capital may crimp lending.
Obama, meanwhile, hopes to sign off on rules to regulate finance within weeks as lawmakers raced to meet a Thursday deadline they had set themselves to agree on their own financial overhaul package.
Obama signalled on Thursday that China’s move this week to relax the peg of its currency, the yuan, to the dollar may not be enough to shield Beijing from accusations that it is using the currency to gain an unfair trade advantage.
“The initial signs were positive. But it is too early to tell whether the appreciation, that will track the market, is sufficient to allow for the rebalancing that we think is appropriate,” Obama said.
The yuan has risen by about 0,4% against the dollar since Beijing’s policy change — a significant step relative to its earlier freeze, but far less than the 25 to 40% increase that some analysts say it needs to make to achieve fair value. – Reuters