WRAPUP 4-G20 policymakers candid about world economic risks

* G20 policymakers fret over fragile global economy

* Minsters warn of risks to growth without prompt action

* No agreement in sight on global bank levy

* S Korea talks a staging post for summits in Toronto, Seoul

By Sophie Taylor and Gernot Heller

BUSAN, South Korea, June 4 (BestGrowthStock) – Leading policymakers
spoke with unusual frankness on Friday of their fears that the
euro zone’s financial and banking woes could derail the global
economic recovery.

The troubles of Greece and other heavily indebted European
governments dominated conversations among finance ministers of
the Group of 20 leading economies meeting in the southern port
city of Busan, officials said.

“It is essential to ensure continued recovery that Europe fix
its banks. It is essential that certain vulnerable European
nations follow through with major fiscal consolidation, and get
the job done,” Canadian Finance Minister Jim Flaherty told
reporters.
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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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Gatherings such as the G20 are typically a stage for
ministers to radiate confidence, especially when financial
markets are in a nervous state, as they are now.

But Flaherty was not alone in his warnings.

“We can’t afford to be complacent,” South Korean Finance
Minister Yoon Jeung-hyun told the opening session.

“Without further and ongoing action from us, the recovery may
not remain on track and we may not be able to achieve strong,
sustainable and balanced growth,” he said.

South African Planning Minister Trevor Manuel said he could
not think of a more challenging time than the present for the
Group of 20, which includes major emerging economies as well as
the richest industrial nations. Decisions needed taking, he said,
to banish the spectre of a double-dip recession.

“It’s important that we all understand just how fragile the
recovery is,” Manuel, himself a former finance minister, said.

As ministers got down to work, police boats patrolled near
the beach hotel where they are meeting. Authorities have steeped
up security in response to war-like rhetoric on the divided
peninsula after the South accused North Korea of sinking one of
its warships. [ID:nTOE65303G]

BALANCING ACT

French Finance Minister Christine Lagarde said the trick for
the G20 was to staunch red ink in their public finances without
squeezing the life out of the nascent recovery.

“We spoke a lot about growth and the compatibility of this
growth with necessary budgetary consolidation, especially in
developed countries and not only in Europe,” she told reporters.

Washington is pressing Germany, whose deficit is relatively
modest by EU standards, not to undermine aggregate demand in the
euro zone by ending its pro-growth policies prematurely.

But a senior German official said Finance Minister Wolfgang
Schaeuble would announce that Berlin, under pressure from
fiscally conservative voters to cut its deficit, would start
unwinding its anti-crisis stimulus outlays from 2011.

The debate over how quickly to rein in deficit spending has
gained urgency since the 16-nation euro zone agreed to a 110
billion euro rescue for Greece after Athens lost the confidence
of bond markets and was unable to roll over its vast debts.

The euro zone, working with the International Monetary Fund,
is also putting together a 750 billion euro ($910 billion) safety
net for other member countries with big debts in case they too
fail to find buyers for their bonds. A forced debt restructuring
would inflict heavy losses on euro zone banks.

Investors first responded enthusiastically to the May rescue
package, but the euro has since slumped to a four-year low
against the dollar on doubts about the capacity of euro zone
states to plug holes in their budgets.

World stock markets have shuddered at the prospect that
Europe’s difficulties could derail a recovery from the deepest
financial crisis since the 1930s.

But U.S. Treasury Secretary Timothy Geithner sounded a more
optimistic note.

“The world economy came into this period of concern about
Europe with stronger underlying momentum and growth than many
people expected, and we’re in a much stronger position to get
through this,” Geithner told CNBC television en route to Busan.
[ID:nN03250823]

BANKING STALEMATE

On the other main item on the Busan agenda, how to reform
global banks to reduce the risk of another crisis, Canada’s
Flaherty said tough new global capital rules would be phased in
over a longer time than originally planned.

In a sign that intense lobbying by banks for more time is
paying off, Flaherty said: “Implementation is a variable. Some
would like a shorter period, some would like a longer period. I
think that can be worked out over time.”

A related proposal for a global levy on banks to pay for any
future bailout was foundering on fierce opposition from Canada,
among others.

Instead, ministers will work on a menu of options for their
political leaders to endorse at a summit in Toronto at the end of
the month. If all goes according to plan, they would then make
more specific commitments at another summit in Seoul in November.

“Different countries’ banking sectors are in different
situations. So there won’t be a a one-size-fits-all policy,” said
Sakong Il, a senior South Korean official.
($1=.8223 Euro)

Investment Tools
(Additional reporting by James Pomfret, David Milliken, Louise
Egan and Yoo Choonsik; Writing by Alan Wheatley; Editing by
Tomasz Janowski and Jonathan Thatcher)

WRAPUP 4-G20 policymakers candid about world economic risks