G-20 flags US fiscal cliff and eurozone’s debt problems

G-20 flags US fiscal cliff and eurozone’s debt problems

G-20 flags US fiscal cliff and eurozone’s debt problems

A woman sits as she holds a sign outside a branch of nationalized lender Bankia as a group of mortgage victims stage a in protest in Madrid. Spain’s debt is one of the largest concerns over the world economy. REUTERS photo

Finance chiefs of the world’s 20 leading economies are ringing alarm bells over the U.S. fiscal cliff and Europe’s debt woes at a meeting in Mexico this weekend as they look to push back deficit reduction targets to help boost growth.

Unless a fractious U.S. Congress can reach a deal, about $600 billion in government spending cuts and higher taxes, the so-called fiscal cliff, are set to kick in on Jan. 1, threatening to push the American economy back into recession and hit world growth.

But with the U.S. presidential election looming tomorrow, dealing with the fiscal cliff has been delayed.
“The Americans themselves acknowledge that this is a problem,” a G-20 official said on condition of anonymity.

“The U.S. administration says it doesn’t want to fall off the fiscal cliff, but right now it can’t tell us how exactly it will address it because that issue is on ice ahead of the election,” the official
also said.

No consolidation plan

Tax cuts enacted under President George W. Bush are set to expire in January, when automatic spending cuts designed to put pressure on lawmakers to strike a long-term budget deal are also set to kick in.

“What remains a sort of key aspect is that the United States is not respecting the current commitments (to reduce its deficits) and does not have a credible fiscal consolidation plan,” one European official said.

The U.S. Congress will also soon have to raise the nation’s debt limit to avoid a default.

An initial consensus around the need for urgent action to prevent a new depression has given way to deep differences over issues such as spending to boost growth and the right pace of belt-tightening to tackle high debt levels.

Jose Angel Gurria, head of the Organization for Economic Co-operation and Development, said on Saturday the G20 should appeal to the United States to avoid the fiscal cliff, but added he was optimistic that Congress would strike a deal. “I still believe it is not going to be applied,” Gurria said in an interview before the meeting of G-20 finance chiefs, which formally starts on Sunday.

Officials are also concerned about Japan’s own fiscal cliff, and recognize that previous commitments made by developed countries to cut their budget deficits in half by 2013 and to stabilize their debt load by 2015 look unfeasible.

Russian offer

U.S. and European officials are also likely to come under pressure from G-20 peers for dragging their feet on implementing the so-called Basel III accords on financial regulations, the world’s response to the 2007-09 financial crisis.

Despite the issue’s prominence, a G-20 source said Russia wants to keep financial regulation discussions at a more technical level when it takes over the presidency of the group from Mexico after this meeting, which ends today.

Spain’s reluctance to seek financial aid is stoking worries that Europe’s debt crisis could further hurt world growth.

The government is under pressure to seek a bailout as it struggles to cope with high public debt and the cost of recapitalizing its banks.

Eurozone sources say they expect Spain to seek financial aid from the eurozone in November.

A government source told Reuters last week that Prime Minister Mariano Rajoy had not ruled out applying for a rescue, but Rajoy has signaled he will not rush unless market conditions deteriorate significantly.

Euro crisis is changing phases: Deputy PM

ANKARA – Anatolia News Agency

The global economic crisis is continuing with “changing phases,” Turkish Deputy Prime Minister Ali Babacan said at a ruling Justice and Development Party (AKP) meeting yesterday in Ankara.

During his presentation on the global and Turkish economy, ahead of his trip to Mexico for the G-20 summit, Babacan said the world economy had still not been able to achieve stability, despite the fact that the crisis had been ongoing for over four years.

Babacan said the main problems that the U.S. was facing were the lack of harmony between the government and Congress, the absence of a clear medium-term program, and the fragility in the banking sector.

Turkey is forecasted to grow at an average of 5.2 percent between 2001 and 2017, which is above the OECD average, Babacan added.