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World leaders weigh stimulus vs. austerity at G-20

By Jack Chang

Associated Press

Published: Tuesday, June 19 2012 2:39 p.m. MDT

"We are united in our resolve to promote growth and jobs," the draft says, declaring that the leaders will announce the "coordinated Los Cabos Growth and Jobs Action Plan" to achieve those goals, although the draft does not provide details of the plan.

"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 reads.

It specifically supports greater government spending in countries that can afford it if conditions get significantly worse, saying countries with "sufficient fiscal space stand ready to coordinate and implement discretionary fiscal actions to support domestic demand."

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

The draft plan also says the Obama administration pledged to prevent sharp tax increases and government spending cuts from kicking in at the end of the year, as scheduled under current law, to avoid sending the U.S. into another recession.

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

As G-20 officials wrangled over last-minute changes in the statement's wording, European leaders at the summit struggled to reassure the world that they were on the path to solving their economic crisis.

The cost of bailing out Spain's €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, exceeding a round of pledges made in April. The countries making the biggest IMF contributions will be Japan, at $60 billion; Germany, at $54.7 billion; and China, at $43 billion. The United States is notably not contributing in the latest round.

The IMF said in a staff report Monday that Europe is unlikely to conquer its budget problems without a greater focus on policies that promote growth. European governments should simplify economic regulations and make it easier to hire and fire workers and let workers move to other European countries for jobs, the fund said. Those reforms could boost growth in the region by 4.5 percent over the next five years.

Even though the party that won Greece's election Sunday supports the bailout and staying in the euro currency zone, there is lingering disagreement over the terms of the international bailout, which required harsh cutbacks in spending that many in Greece blame for widespread hardship suffered by ordinary citizens.

German Chancellor Angela Merkel has indicated that finding room for negotiation might not be so easy, saying Greece had to uphold its side of the bargain.

But a European Union official on Tuesday argued that the terms of Greece's bailout will be renegotiated because worsening economic conditions have made the old bailout agreement an "illusion."

The official, who spoke on condition of anonymity, citing policy, said the goals of the agreement would not be changed: They remain to reduce Greece's debt to a level that is sustainable and to reform its economy to make it competitive. But how those goals are achieved, and over what time period, will be up for discussion.

Associated Press writers Michael Weissenstein in Los Cabos, Mexico; Christopher S. Rugaber and Jim Kuhnhenn in Washington; Geir Moulson in Berlin; and Sarah DiLorenzo in Brussels contributed to this report.

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