World leaders weigh stimulus vs. austerity at G-20

By Jack Chang

Associated Press

Published: Wednesday, June 20 2012 4:50 a.m. MDT

Those cutbacks have led to dramatic economic hardship for voters in Greece and other countries. A growing number of European countries 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. Countries with "sufficient fiscal space stand ready to coordinate and implement discretionary fiscal actions to support domestic demand."

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 countries 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.

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," she said.

The statement said 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.

Treasury Secretary Timothy Geithner said the U.S. was "encouraged" by European leaders' plans to confront the continent's economic crisis.

Speaking on the sidelines of the summit, Geither said Europe will now focus on helping Greece stay afloat, designing a more integrated financial system and improving economic growth.

"And all of us, of course, have a huge interest, a huge stake in the success of their efforts," he said.

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 €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 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.

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

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