The United States and Brazil warned European powers over their plans to drastically cut national budgets at the start of the G20 summit in Toronto on Saturday, arguing that economic recovery could be put at risk if spending is restricted.
AFP - Europe's economic policies came under blistering scrutiny Saturday as world leaders gathered in Toronto, with the Old Continent being cast by allies as the sick man of the global economy.
Leaders from the Group of 20 top economies huddled in Toronto to discuss policies that might put some heat in a tepid global recovery and turn the page on the worst financial crisis since the Great Depression.
Protesters also heard and seen in Toronto
But Europe -- rocked by a sovereign debt crisis that has threatened the future of the euro and the decades-long movement toward continental integration -- found its prescriptions rejected by global partners.
Even before the landing gears were down on the planes of late-arriving leaders, Europe's biggest hitters were forced to admit their ideas for a global bank tax to moderate financial sector excess had been shot down in flames.
A proposal from Britain, Germany and France to impose levies on banks' liabilities or profits appeared to receive close to no backing from other G20 members.
"Three countries supported this idea. We are a year into the process and there are still three countries which support the idea," a senior G20 official told AFP. "The parrot is not sleeping, it is no more. It's dead."
German Chancellor Angela Merkel conceded defeat. "We have to expect that we will get a negative decision," she said.
"The French president and myself will speak in favor of it tomorrow but unfortunately we ... don't have a consensus, neither on a bank levy nor on a financial tax."
The tree countries are now expected to move ahead alone with domestic banking taxes, despite initial fears that it may make their banks less competitive. But worse may be to come.
With investors demanding ever-higher risk premiums for lending to indebted European nations, the leaders from Britain, France and Germany arrived at the summit pledging to dramatically cut budgets to put their books in order.
But that plan come under attack from the United States, which voiced concern that the recovery could be put at risk if government spending is cut too quickly and domestic demand dips.
That concern bubbled to the surface Saturday when Geithner said Europe and Japan must do more to fuel domestic demand.
"I don't think that you've seen from those countries yet a set of policies that would, again, give everybody confidence that you're going to see stronger domestic demand growth in those countries coming forward," he said.
"This recovery is now being led by very strong growth in the emerging markets and a solid expansion in the United States.
"Growth started somewhat later in Europe and Japan and it's projected to be somewhat slower over time, and it's still dependent on exports to the rest of the world."
Meanwhile Brazil warned that Europe's plans would also hurt emerging economies.
"If the cuts take place in advanced countries it is worse, because instead of stimulating growth they pay more attention to fiscal adjustments, and if they are exporters they will be reforming at our cost."
Date created : 2010-06-27