G20 strives to cut deficits without killing growth

* Balancing growth and deficit cuts at heart of G20 talks

* Ministers see tough task fine-tuning clashing imperatives

* No consensus in sight on global banking levy

By Alan Wheatley

BUSAN, South Korea, June 3 (BestGrowthStock) – Disagreements over how
quickly to reduce billowing budget deficits and restore balance
to the global economy risk straining high-level Group of 20 talks
starting on Thursday.

A plunge in the euro and in global stock markets, triggered
by fears that Greece’s debt woes could spread to other euro zone
countries, has added urgency to the meetings of G20 finance
ministers and central bankers in this southern port city.

With officials ruling out agreement in Busan on key financial
and regulatory reforms, including a mooted global bank levy, the
need to strike the right balance between trimming deficits and
sustaining economic growth will take centre stage.

“That is a shared imperative. We all recognise it,” U.S.
Treasury Secretary Timothy Geithner told reporters in Washington
on Wednesday before leaving for South Korea.

“As the IMF says, we want those fiscal reforms to happen in a
way that’s growth-friendly,” he added. “Some countries are in a
very strong position. Some countries need to move much more
quickly.”
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TAKE A LOOK on the G20 meeting [ID:nSGE64R00R]

G20 ministers face wrangling over bank tax [ID:nLDE64O0MP]

Q+A – G20 efforts to agree a bank tax [ID:nLDE64Q135]

FACTBOX – What the G20 will discuss in Busan [ID:nLDE64Q1LB]

FACTBOX – G20 progress on financial regulation [ID:nLDE64N0NC]
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Another G20 official put the need for coordinated fiscal
tightening more graphically: the euro zone crisis had shown that
some countries would have to withdraw stimulus earlier than
expected, but not everyone should run to the other side of the
boat at the same time said.

Deputy ministers were holding preparatory talks on Thursday,
a day ahead of the start of the main meeting, which is itself
clearing the ground for a June 26-27 G20 summit in Toronto.

The G20, the premier international economic policy
coordination forum, brings together the world’s systemically
important rich economies and emerging markets. Together they
account for 85 percent of global output.

NO “BRUTAL SHIFT”

Anxious to soothe global markets, the group is expected to
back the euro zone’s deficit-cutting strategy, even though China
and Brazil have expressed concern that the bloc has not acted
more decisively.

However, differences of emphasis, if not downright
disagreement, on how fast to plug the hole in public finances are
close to the surface within the euro zone itself.

French Finance Minister Christine Lagarde brushed off concern
in some G20 capitals that Germany is preparing fresh
belt-tightening even though its deficit, while above 5 percent of
GDP, is modest by European standards.

Speaking to reporters in Paris on Wednesday, Lagarde said
removal of the economic stimulus that governments put in place to
combat recession was all a matter of “fine-tuning”.

But she added: “We need to be careful to avoid brutal
shifts.”

Fiscally conservative Germany, the largest euro zone economy,
is considering raising value-added tax to the full rate of 19
percent on certain items that now benefit from a lower rate of 7
percent, according to sources in the coalition government.

“If you abolish tax breaks, some will say that’s a tax
increase. At the end of the day, it’s about having a sensible and
balanced policy,” Finance Minister Wolfgang Schaeuble told the
Bild am Sonntag paper last weekend.

DIFFERENCES

Beyond fire-fighting on the deficit front, ministers will
discuss the medium-term growth framework — or how to iron out
economic imbalances that were a root cause of the 2008-2009
global financial crisis.

Here, the emerging-market members of the G20 are concerned
that the onus for adjustment will fall unfairly on them,
impinging on their sovereignty in the process.

Brazilian Finance Minister Guido Mantega expressed this
frustration, blaming a weak dollar and low U.S. interest rates —
not an undervalued Chinese currency — for many of the world’s
economic woes.

“I’ve noticed there’s a strategy by the United States and
advanced countries to increase exports and reduce their
imbalances at the cost of emerging markets,” Mantega told Reuters
in Brasilia last month. [ID:nN12192377]

“We have to reach a compromise, otherwise the emerging
markets will seek solutions to defend their interests that will
clash with those of the Americans and Europeans,” he said.

Officials said that Canada, the current G20 president, hopes
it can at least secure agreement in Toronto on the broad suite of
policies needed to reduce global imbalances as the economy
recovers.

If all goes well, individual countries would then commit
themselves to specific policies at the next G20 summit in Seoul
in November.

Stock Market Report
(Additional reporting by Brian Love in Paris, Louise Egan in
Ottawa, Glenn Somerville and Emily Kaiser in Washington and
Raymond Colitt and Ana Nicolaci da Costa in Brasilia; Editing by
Tomasz Janowski)

G20 strives to cut deficits without killing growth