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Europe gets tough in G20 austerity, growth fight

22 June 2010, 17:01 CET
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Europe gets tough in G20 austerity, growth fight

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(BRUSSELS) - Europe acted emphatically on Tuesday to dismiss plaintive US cries that it was slashing budgets too quickly and threatening growth, days from a crunch meeting of the world's top economies.

Britain announced the heaviest cuts in a generation, slashing billions more from public spending, raising taxes and even announcing reform of funding for the Queen's household in a radical and symbolic policy swing.

German Chancellor Angela Merkel also revealed she had told the US President that he had got it plain wrong.

"Yesterday, during a phone call with Barack Obama, I told him how important budgetary consolidation was," Merkel said.

She added she did not believe savings measures she has announced for Germany, amounting to some 80 billion euros (98 billion dollars) from next year until 2014, "would slow down the global economy."

France also joined Britain and Germany in saying they will introduce levies on banks to make them help pay for global recovery, a notion that the United States supports but that is opposed by Australia, Canada, China, India and Russia.

However, US Treasury Secretary Timothy Geithner illustrated the policy gulf across the Atlantic going into Saturday and Sunday's G20 summit in Toronto, Canada.

"Millions of Americans are still looking for work and are suffering from the damage of a deep recession. The impact of this crisis will be lasting," he told Congress.

"Government policies continue to play an important role in repairing the damage to our financial system, preserving stability and broadening the scope of the financial recovery for all Americans."

British finance minister George Osborne had taken a very different tack in outlining his budget to parliament in London.

"The truth is that this country was living beyond its means when the recession came and if we don't tackle pay and pensions, more jobs will be lost," he said.

Coming hot on the heels of even fiercer belt-tightening in Spain and of course Greece, the march of austerity has turned into the great dividing line going into the summit.

In a letter to G20 colleagues, the primary forum for global economic coordination, US President Barack Obama had warned: "We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession."

But European leaders instead place the accent on a need to complete financial sector regulation, blaming market attacks on the eurozone for hurting confidence.

"Without addressing this issue, there will be no confidence, and without confidence, no growth," European Commission president, Jose Manuel Barroso, said of the austerity drive in an interview with the New York Times.

A top-ranking European Union official claims that the US, Canada and other rivals simply "want to place Europe's debt crisis at the heart of the G20 summit."

He retorted: "It would be masochistic for us to accept that spin... Don't forget that the origins of the financial crisis lay in the United States."

Officials point to an average EU public debt of 84 percent as a ratio of gross domestic product, compared to 102 percent in the US and 192 percent in Japan.

"If they want to talk about debt, let's talk," he said.

The figures for annual public deficits are 6.3 percent for the EU, nine percent in Japan and 12 percent in the US.

Canada has proposed targets for G20 members to cut in half budgetary deficits by 2013 and stabilise debt-to-GDP ratios by 2016.

Europe will insist that any agreed targets are classed as "minimum" aims, with the worst offenders going further, faster.

"Europe takes a more balanced view, a more intelligent strategy," said one EU official.

"The need to address deficits and debts implies that fiscal policy can no longer boost the economy," underlined the EU's trade commissioner, Karel de Gucht, on Tuesday.

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