WRAPUP 1-U.S. demands Europe acts on economy, banks at G20

* G20 finance ministers eye steps to bolster global economy

* U.S. urges Germany, Japan to boost domestic demand

* Treasury head Geithner urges Europe to strengthen its banks

By David Lawder and Testsushi Kajimoto

BUSAN, South Korea, June 5 (BestGrowthStock) – Finance chiefs raced
on Saturday to agree on ways to support growth and make global
banks safer with a warning from Washington ringing in their ears
that Europe and Japan must do more to boost home-grown demand.

Finance ministers and central bank governors from the Group
of 20 industrial and emerging economies were working through a
communique drawn up overnight by their deputies aimed at soothing
global markets unnerved by a spreading debt crisis in Europe.

The euro (EUR=: ) plunged to a four-year low on Friday, partly
on concerns that Hungary could be facing a debt crisis similar to
that of Greece, which had to turn to fellow euro zone members
last month for a 110 billion euro bailout. [ID:nN04144154]

In a letter to his counterparts ahead of the G20 meeting in
this South Korean port city, U.S. Treasury Secretary Timothy
Geithner welcomed Europe’s steps to stem the crisis, which
include a 750 billion euro financial safety net.

Implementing those measures would help to limit risks to the
global economy, which is recovering from its deepest recession in
80 years brought on by the 2007/08 banking system meltdown.

But Geithner, in a letter sent on Thursday, said global
growth would fall short of potential unless the rest of the world
compensated for a drop in aggregate demand caused by a rise in
U.S. savings as debt-strapped households tighten their belts.

“In this context, we are concerned by the projected weakness
in domestic demand in Europe and Japan,” Geithner wrote.

He singled out the need for “European surplus countries” —
code principally for exports powerhouse Germany — to ensure
sustained growth in domestic demand. China, which also runs a big
external payments surplus, should let its exchange rate rise to
promote more spending at home, Geithner added.

Germany has a budget shortfall of more than 5 percent of
national income that is relatively modest by European standards.

But deficit spending is anathema to most German politicians
and voters, and a senior German official said Finance Minister
Wolfgang Schaeuble would soon announce that Berlin would start
unwinding its anti-crisis stimulus outlays from 2011.


Geithner also piled pressure on Europe to help recovery by
doing more to restructure and recapitalise its banks, many of
which were badly weakened by the financial crisis and are heavily
exposed to struggling euro zone debtors.

“This process would be advanced by a reaffirmation by
governments of existing capital and guarantee programmes, and by
a broader effort to enhance transparency and disclosure of the
major interconnected financial institutions,” Geithner wrote.

American officials, so far in vain, have been pressing
European governments to conduct “stress tests” to gauge the
capacity of their banks to withstand another market crash.

The U.S. Treasury chief has been emboldened by the passage of
bills in both houses of the U.S. Congress that he said addressed
all the major principles of banking reform laid out by the G20.

He said he expected a strong package of measures to become
law this summer.

A communique to be issued later on Saturday after two days of
talks is likely to stop short of endorsing a global bank levy to
pay for future financial bailouts. Canada, Australia, India and
Brazil are among those opposed to the plan.

G20 leaders meeting in Toronto later this month will instead
be presented with a list of reform options from which they can

Geithner urged his counterparts to subject all dealers and
major participants in derivatives markets to supervision and
regulation, including conservative capital and margin
requirements, to mitigate the potential for systemic risk and
market abuse.

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(Writing by Alan Wheatley; Editing by Tomasz Janowski)

WRAPUP 1-U.S. demands Europe acts on economy, banks at G20