LONDON: Deep splits over action to halt the raging economic crisis and a German-French drive to focus on cross-border rules for finance are souring the air before a G20 finance ministerial meeting near here Saturday.
Just three weeks before a gathering of heads of state from the Group of 20 (G20) leading economies, discord seems to outweigh lip service to coordination.
US President Barack Obama is trying to bridge the gap, calling on Wednesday for a two-pronged G20 effort to fix the global economy: stimulus measures and regulatory reforms.
We ve got two goals in the G20, Obama said at a joint media appearance with Treasury Secretary Timothy Geithner.
The White House has been pressing for more spending by G20 countries after enacting a $787 billion stimulus last month.
But after a meeting of eurozone finance ministers this week, their chairman Jean-Claude Juncker of Luxembourg rejected the US calls for more pump-priming, declaring they do not suit us.
Juncker after conferring with Czech officials in Prague on Thursday again voiced opposition to any additional spending plan to combat the crisis.
The European recovery program represents a spending level of 3.4 to 4.0 percent of GDP, he said.
Our public finances are beginning to suffer and we must take account of the effects these programs will have in 2009 and 2010 before we undertake additional spending.
So far the US stimulus of $787 billion (?615 billion) is substantially more than the ?400 billion engaged by 27 EU countries. The two total economies are of comparable size, but the EU has not forged an integrated response.
British finance minister Alistair Darling told reporters on Wednesday amid the worst economic crisis for decades: We must work together not as a small group of advanced economies, but globally.
No problem should ever be too great for us to deal with.
For the whole of 2009, Britain is chairing meetings of the G20 – a grouping of 19 developed and developing countries plus the European Union.
The main point of contention appears to be a push by the United States and Britain – which have angled much of their rescue spending on boosting demand – for some leading EU countries to do likewise.
The United States and Britain have included heavy demand-side measures, such as a cut in sales tax in Britain, because they stimulate activity quickly.
They argue broadly that some countries, principally Germany but also France, have focused unduly on increasing state spending on investment in industry and infrastructure and should now allocate extra funds to spark consumption.
However, leading countries in Europe face constraints on their big budget deficits, which are rising markedly above EU limits. German officials have also begun to talk about exit strategies from the massive state spending and support programs once the crisis begins to abate.
European Commission chief Jose Manuel Barroso on Thursday defended Europe s efforts to soften the blow of the global crisis.
The social system of Europe is very different from the American one, he told a news conference in Brussels.
We have, compared to the US, a very ambitious system of social safety nets, in terms of unemployment, in terms of public health and in many other areas.
So when we talk about fiscal stimulus, it s not the same thing in the US and in Europe because the Americans usually think about discretionary additional fiscal stimulus, he said.
Germany, and also France, want the emphasis of preparation for the G20 summit in London on April 2 to focus on reforming the rules governing financial markets, notably across borders.
German Chancellor Angela Merkel last month said that there should be no more gaps in international controls of financial products.
Investec Securities economist Philip Shaw forecast: Ministers will (on Saturday) discuss medium-term regulatory frameworks, the need for improvements to the financial system and wider economic stimulus and speak out against protectionism.
Finance ministers and central bankers from nations including Britain, China, Germany, Japan, Mexico, Turkey and the United States, will begin arriving on Friday at a hotel in the small town of Horsham where the meeting is to be held.
As G20 nations were finalizing preparations ahead of the weekend finance meeting, China s foreign minister, Yang Jiechi, was in Washington meeting Geithner and US Secretary of State Hillary Clinton.
Clinton said the US and China, the world s first and third-richest economies respectively, share the burden to make sure that G20 crisis efforts bear fruit.
The United States, the eurozone, Japan and Britain are all in recession as the global economy struggles to recover from the impact of the worldwide credit crunch.
G20 member Japan said on Thursday that it would call for concerted action to stimulate the global economy and for tighter financial regulations at the weekend meeting. -AFP
