G20 split over more crisis spending as meeting looms
Japan and China on Friday backed government spending to fight the global financial crisis, ahead of a G20 meeting at which the United States and Europe are split over the need for more aggressive stimulus measures, according to Reuters.
Japanese Finance Minister Kaoru Yosano urged world leaders to focus on giving an immediate boost to the global economy and promised to unveil new economic stimulus measures by April. China said it was ready to do more if needed to spur its growth.
"The immediate issues are to stabilize the financial system (and) to get out of the present deflation threat facing the world economy," Yosano was quoted as saying in Friday`s edition of the Financial Times. "These two are the most important things."
Finance ministers and central bankers from the Group of 20 nations will meet near Brighton, England, on Friday and Saturday to discuss a roadmap to tackle the worst financial crisis since the Great Depression. G20 leaders meet in London on April 2.
The world`s top economic powers are under pressure to deliver on pledges made in November, when they outlined an action plan to combat the crisis and guard against future meltdowns.
But the run-up to this weekend`s gathering has been dominated by disagreements over what the summit`s priorities should be, and the degree to which countries should ramp up stimulus spending.
Washington is urging the biggest industrialized countries to spend 2 percent of their gross domestic product to boost demand and pull the global economy out of its tailspin, but France and Germany have rejected U.S. and British calls for fresh spending.
"The international community must unite to tackle the downturn and set the path toward a sustainable future," British finance minister Alistair Darling said on Friday in a column in the Wall Street Journal.
"We must do three things: boost demand, reform the global system of financial regulation, and increase the resources of the International Monetary Fund (IMF)."
The G20 represents more than 80 percent of the global economy, comprising the Group of Seven industrial nations -- all of which are in or near recession -- and key emerging markets such as Russia, China, India and Brazil.
Early in the crisis, major central banks made coordinated rate cuts to spur demand but policy actions have been largely ad hoc since. Many governments announced multiple stimulus packages and massive bank rescue plans only to see their economies sink deeper into recession and their finances fall deeper in debt.
EUROPE BAULKS AT MORE SPENDING
The world economy shrank for the first time since 1945 in the last quarter of 2008, throwing millions of people out of work, and the IMF forecasts global growth will be negative in 2009, the first annual global contraction for more than 60 years.
"We consider that in Europe we have already invested a lot for the recovery, and that the problem is not about spending more, but putting in place a system of regulation so that the economic and financial catastrophe that the world is seeing does not reproduce itself," French President Nicolas Sarkozy told a news conference in Berlin on Thursday with German Chancellor Angela Merkel, rebuffing U.S. calls to spend more.
Russia will also oppose British proposals for G20 members to set a mandatory minimum fiscal stimulus level at 2 percent of GDP and cut interest rates, a Russian delegation source told reporters on Thursday.
Russia`s own fiscal stimulus package amounts to 4.5 percent of GDP, but it has been raising its rates to support the rouble and stem capital flight as investors flee emerging markets.
China`s Premier Wen Jiabao sought to reassure the world on Friday that China would deliver on its promise of 8 percent growth in 2009 despite a collapse in Western demand for Asian goods, and could roll out extra stimulus spending if needed to meet the goal.
Beijing has already unveiled a 4 trillion yuan ($585 billion) plan to expand and speed up government spending.
"We have prepared enough `ammunition` and we can launch new economic stimulus policies at any time," Wen told his annual news conference after the yearly meeting of the Chinese parliament.
Progress is being made in some quarters, with G20 financial leaders expected to back a call to give more money to the IMF to help fight the crisis.
Glimmers of hope may also be emerging for badly battered financial markets amid signs that large U.S. banks may survive without full government takeovers.
But a solution to the core problem of what to do with a mountain of troubled assets held by banks is likely to be elusive, and global economic recovery hinges on nursing the ailing financial system back to life.