G20 split over global recovery plan
Leaders meeting in Canada divided on whether to cut or spend their way towards recovery.
Last Modified: 26 Jun 2010 00:21 GMT
Merkel has said that Germany will stick to planned spending cuts over the next four years [Reuters]

World leaders meeting in Ontario in Canada for G20 discussions are divided over how to tackle the global economic crisis.

European delegates at the summit have said that they want to focus on austerity measures to cut the deficits, while the United States is looking to maintain stimulus spending to encourage growth.

"That's the delicate balance that we need to try to strike this weekend," Jim Flaherty, Canada's finance minister, said.

Delegates from the G20 group of developed and emerging nations will meet in Toronto on Saturday, after members of the G8 group held a separate meeting in Hunstville, 220km to the north of the city, on Friday.

Barack Obama, the US president, said: "We need to act in concert for a simple reason: This crisis proved and events continue to affirm that our national economies are inextricably linked."

'Different strategies'

Speaking to Al Jazeera, Linda Yueh, an economist at the University of Oxford, said that while the two strategies of cuts and spending could "co-exist," they were "very, very different".

Yueh said: "The United States is, at the moment, trying to push through another fiscal stimulus, more public spending, because they are worried that the recovery will suffer from high unemployment in the aftermath of the financial crisis.

"Europe, on the other hand, is practically facing a sovereign debt crisis ... so they feel they have to tighten their budgets now, bring the deficit down.

"They can co-exist, however the Americans feel that the Europeans are doing too much, too quickly, and they could possibly cause the global economy to fall into another recession." 

The key themes of the G8 talks were "growth and confidence," Herman Van Rompuy, the president of the European Union, told journalists.

"The global recovery is progressing better than previously envisioned, although at different speeds," he said.

"Restoring confidence in budgetary policies goes hand in hand with growth strategies."

Right mix

Timothy Geithner, the US treasury secretary, said that each nation at the summit needs to find the right policy mix to reduce government budgets and support growth.

"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," Geithner said in an interview with the BBC.

Much of the discussions are expected focus on those policies needed to reduce budgets and aid global growth.

Angela Merkel, the German chancellor, said her country would continue with slated measures to cut $98bn from its budget over the next four years.

"We'll enact the measures that we've agreed upon," Merkel said on Thursday.

"I believe we should not let up."

Jose Manuel Barroso, the president of the European Commission, said there was no longer the possibility for Europe to spend and run-up deficits, rather savings and confidence building was needed.

"It will not be a change overnight but there is no more room for deficit spending," Barroso said at a news conference in Toronto.

US fears

Britain, France and Spain, among other European nations, are also pushing forward with budget cuts despite US fears that reducing spending too rapidly could put the global recovery under threat. 

"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"

Barack Obama,
US president

Obama said on Thursday that "surplus countries", often taken to mean Germany and China, need to continue to find means to stimulate growth.

However, he said that nations with deficit problems, including the US, need to address their issues.

"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.

The G20 group of rich and emerging nations have spent about $5 trillion bolstering their economies since the global economic crisis struck.

Bank tax

The issue of a bank tax is also up for debate, with Britain, France, Germany and the US all publicly encouraging other G20 nations to accept the tax.

However, Canada, Russia, China, India and Australia have shown opposition to the move.

The banking industry is widely blamed for stoking the global recession via provision of unsustainable loans and questionable trading practices.

Consensus also needs to be reached on new rules governing the amount of capital that banks must hold, and ensuring that national financial regulatory reforms do not clash on the global stage.

Security surrounding the meeting of the world's most powerful nations is on high alert, the cost of which is expected to surpass $1bn.

A man with a chainsaw and petrol canisters was arrestednear the summit grounds and demonstrations are expected in the eastern city on a variety of causes including the environment and global poverty, with many activists opposing gatherings of the rich and powerful.

Al Jazeera and agencies
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