G20 plots post-crisis path; Greece dampens hopes

* Bank tax levy likely to be big G20 theme Friday

* Greece’s debt woes focus ministers minds on fiscal mess

* Global rebalancing still faces implementation pains

By Emily Kaiser

WASHINGTON, April 23 (BestGrowthStock) – World finance leaders
gather in Washington on Friday hoping to plot a course beyond
the financial crisis but Greece’s worsening debt woes served as
a stark reminder the global economy remains vulnerable.

The Group of 20 rich and emerging countries, whose
crisis-forged unity helped to end the global recession, must
find common ground on controversial matters including
regulating banks, rebalancing global growth and giving
fast-growing emerging economies more clout.

Their talks were likely to focus also on the problems of
Greece after the country’s gaping budget deficit was revised
even higher and investors rushed to sell its already battered
debt on Thursday.

The G20 has essentially supplanted the smaller G7 club of
advanced economies, an acknowledgement that this crisis
emanated from the rich world which now needs help from
fast-growing emerging powerhouses to solves global problems.

The united front, however, may already be fracturing.
International Monetary Fund chief Dominique Strauss-Kahn urged
the countries to stick close together on regulatory reform so
that policies mesh.

The sharpest divisions were over bank taxes, with Canada
strongly opposed and Britain pushing for support. Finance
ministers are expected to discuss two bank tax ideas proposed
by the IMF. The Fund will present a report to G20 heads of
state who are meeting in Toronto in June.

Shin Hyun Song, a senior economic adviser to South Korean
President Lee Myung-bak, said bank levies would be the “big
theme” of Friday’s meeting.

The aim is to recoup the cost of bailouts so banks, not
taxpayers, pick up the tab, but it is also a way to discourage
banks from placing so many risky bets again.

“If we look at the bank levy idea more broadly as a means
of changing behavior for the better, rather than just raising
money, then it is much easier to sell this to other countries
who didn’t put any public money into the banking sector,” he
told Reuters.

He compared the bank levy to central London’s congestion
charge: “The primary purpose of that is to discourage people
from taking their car into central London,” he said.


In September, when G20 leaders met in Pittsburgh to draw up
economic recovery plans, the mood was somewhat more upbeat.
Officials summed up their recession-fighting efforts with a
two-word proclamation: It worked.

Economists widely agree that efforts to pump a combined $5
trillion in stimulus money into the economy and cut interest
rates to the bone stopped the free-fall.

However, the rescue left most advanced economies
shouldering debt burdens approaching World War Two highs, and
Greece’s fiscal troubles highlighted how risky that can be.

While Greece is not formally on the G20 agenda, it was
clearly on the minds of officials gathering here — dominating
a G7 session on Thursday night.

Athens’ problems are somewhat unique in that its data was
faulty, disguising the true size of its budget deficit. The
European Union’s statistics office triggered Thursday’s
sell-off by saying the hole was even greater than thought.

European officials asked their counterparts from the United
States and Japan for a “show of support” on Greece when they
met at a dinner on Thursday, Japan’s finance minister said.

When questioned whether Europe asked for U.S. and Japanese
support in rescuing Greece from a deepening debt crisis, Naoto
Kan said: “Europe expressed such hope, but that is not about
money. They seem to have wanted a show of support.”

Debt burdens in rich countries and massive surpluses in
exporting giants such as China are at the heart of the global
imbalances the G20 has pledged to combat.

A U.S.-backed framework for global rebalancing was broadly
embraced in Pittsburgh but implementation may prove tricky,
particularly when the policy prescription is unpopular.

Reducing imbalances means China and other export-dominated
economies must adopt policies to support domestic growth, which
means letting currencies rise more rapidly and investing in
social safety nets to try to promote consumer spending.

That could cool growth in the short run and make it hard to
create sufficient jobs for a rapidly growing population.

China has rejected pressure from other countries to allow
its yuan to rise in value but, after a quieting of criticism
from the United States, leaders have signalled they might allow
it to resume appreciating.

Fellow developing economy heavyweights Brazil and India,
plus the European Union, have called for a stronger yuan in
recent days although officials arriving in Washington ahead of
the G20 meeting made few comments about the Chinese currency.

Japan’s Kan said G7 ministers did not discuss the yuan.

(Reporting by G20 team; editing by Patrick Graham)

G20 plots post-crisis path; Greece dampens hopes