Finance ministers from the world\’s biggest economies are trying to find common ground ahead of the vital G20 summit in April but already the talk is of splits.
The world\’s richest countries — the United States, Japan and China – plus wealthy European nations and emerging powers like South Korea will bid to lay the foundations for a plan to pull the global economy out of its tailspin.
But the build-up to the meeting at a luxury hotel near Horsham, south of London, has been marred by clashes between the United States and Europe on whether this is best done through new stimulus measures or tougher regulation.
Fears for G20 summit
Failure to come up with a clear commitment to action will dampen hopes that the much-heralded G20 summit, to be hosted by current G20 president Britain in London, can fulfil its promise and further hit already volatile stock markets.
On the eve of the finance ministers\’ meeting, Britain\’s finance minister Alistair Darling tried to play down talk of splits between the US – whose positive view of stimulus is shared by Japan and China — and Europe.
Transatlantic rift downplayed
“I don\’t actually think that the divisions between the European countries and the US are anything like what has been described over the last few days,” Darling, the event\’s host, told BBC radio.
“I think on both sides of the Atlantic — and also, for that matter, in other parts of the world — there is a commitment to ensure that we support people, support businesses and our economies.”
But recent exchanges suggest there are real differences.
Stimulus or regulation?
In recent days, senior US officials including Obama\’s top economic adviser Larry Summers have said leading nations must try to jumpstart a global recovery by pumping more money into their economies.
That has not been welcomed in Europe, where many leaders do not want more spending because of already big budget deficits.
French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed Thursday to join forces at the summit to urge tighter regulation to avert future crises instead of more spending, in a rare show of unity.
And the chairman of eurozone finance ministers Jean-Claude Juncker of Luxembourg added this week that US calls for more cash to be injected into the world economy “do not suit us”.
Obama said this week he was “optimistic” about the prospects for agreement, adding: “Everybody understands that we\’re in this together.”
Current situation ‘dangerous’
Whether or not they reach agreement, finance ministers at the meeting will find it hard to forget that many of their countries are facing their worst recessions for decades amid shrinking consumer demand.
World Bank President Robert Zoellick, who has provided some of the most sobering analyses of the current situation, arrived Friday after warning that 2009 was turning into a “very dangerous year” for the economy.
Earlier this week, Zoellick said the current crisis was the worst since the 1930s. He added that any new stimulus plans would be “like a sugar high unless you fix the banking system.”
Banking regulation begins
Those in favour of tighter regulation received a boost Friday when Switzerland, Luxembourg and Austria said they would relax their sensitive bank secrecy laws amid growing international pressure to stamp out tax havens.
Their announcements followed similar moves Thursday by Belgium, Liechtenstein and Andorra.
France and Germany have been leading the charge to clamp down on tax havens amid claims a lack of transparency helped fuel the crisis and the issue is likely to remain on the agenda at Saturday\’s meeting.
The meeting is also likely to touch on trade protectionism and increasing funding for the International Monetary Fund (IMF) to bail out struggling countries.