Leaders weigh means to fix economy at G-20 summit

Share with others:

Print Email Read Later

LOS CABOS, Mexico -- With major European economies on the brink of collapse, leaders concluding an annual Group of 20 meeting sought Tuesday to reassure the world that they would find a way to put out the debt-fueled economic wildfire that has threatened banks, wiped out jobs and toppled governments across the continent.

But the presidents and prime ministers gathered in this seaside resort seemed content to delay any major decisions for a while longer, releasing only a general statement that stopped short of committing any nations to greater spending unless conditions worsen and urging fiscal responsibility.

For months, governments and economists have weighed two different paths to ease the financial crisis: spending more to try to stimulate growth or slashing budgets. European leaders headed home without announcing any significant agreements, and they aimed to meet again later this month in Brussels, with a goal of adopting a more detailed plan.

Still, the battle lines in the stimulus-versus-austerity debate were clearly drawn among the 24 heads of government gathered in a heavily guarded convention hall lined by a moat.

Conservative leaders of the United Kingdom, South Korea and Germany came out decisively for austerity, warning that budget cuts were crucial to restoring fiscal order and worldwide confidence.

On the other side were left-leaning governments, such as those in Argentina, Brazil and France, that have denounced the German-imposed austerity plan for struggling countries such as Spain and Greece and pushed for more stimulus spending.

President Barack Obama said European leaders "grasp the seriousness" of their debt crisis and are moving with a "heightened sense of urgency" to find a solution.

After the summit, he said the economic problems in Europe won't be solved by the G-20 or the United States, but by European nations. He said he was confident they could do that, but acknowledged the difficulty of getting the separate legislatures to agree.

The summit statement's reassuring words failed to sooth troubled world stock markets, which remained mixed and nervous Tuesday.

Germany must shoulder a large share of contributions to bail out economically weaker European countries that overspent for years. In exchange, Germany has been insisting on steep cutbacks from aid recipients such as Greece. Those cutbacks have led to dramatic economic hardship for voters in Greece and other countries.

A growing number of European nations have been advocating spending and growth, not austerity, and the G-20 statement made limited mention of such a possibility.

"We are united in our resolve to promote growth and jobs," the document said. "Strong sustainable and balanced growth remains the top priority of the G20, as it leads to higher job creation and increases the welfare of people across the world."

The statement threw support specifically behind greater government spending in countries that can afford it, if conditions get significantly worse.

The plan also hinted at flexibility by asking that governments "take into account evolving economic conditions," which could open the way for more latitude in troubled nations such as Greece.

British Prime Minister David Cameron and French President Francois Hollande noted that the summit's final declaration also pledges to avoid new protectionist measures until the end of 2014, and that China has agreed to let currency fluctuate more freely, according to market forces.

German Chancellor Angela Merkel repeated Tuesday that Greece has to uphold its side of the bargain. "It's obvious that the reforms that were agreed in the past are the right steps, and that they therefore must be implemented," she said, though she avoided directly answering the issue of giving Greece more time.

Ms. Merkel said the G-20 leaders had a "very balanced" discussion on growth, though she stressed once again that growth "is not just about money --we need the right mix of budget consolidation ...and, at the same time, efforts for growth."

The statement said the Obama administration pledged to prevent sharp tax increases and government spending cuts from kicking in at year's end, as scheduled under current law, to avoid sending the United States into another recession.

Repeatedly, the G-20 plan stresses shoring up banking systems. It calls for a "more integrated financial architecture, encompassing banking supervision, resolution and recapitalization, and deposit insurance."

The cost of bailing out Spain's (euro) 1.1 trillion ($1.39 trillion) economy would likely outstrip current global ability, even after the International Monetary Fund announced late Monday that a round of contributions had increased its lending capacity to $456 billion. The nations making the biggest IMF contributions will be Japan, $60 billion; Germany, $54.7 billion; and China, $43 billion. The United States is notably not contributing.


First Published June 20, 2012 12:00 AM


You have 2 remaining free articles this month

Try unlimited digital access

If you are an existing subscriber,
link your account for free access. Start here

You’ve reached the limit of free articles this month.

To continue unlimited reading

If you are an existing subscriber,
link your account for free access. Start here