G20: How Obama intends to manage the world crisis?
President Obama, worried that the fragile world economy could fall again in recession, as happened in 1930 during the Hoover administration, wants to keep its free counterparts, still, to a certain level , incentive costs as a way of sustaining economic growth.
But European leaders are more cautious about these expenses, frightened by the example of Greece, where investor confidence has been shattered by a huge debt to the Greek State, which needed international financial help, says the Wall Street Journal.
In China, officials fear it could create stimulating unsustainable bubble. Currently there is some flexibility for the currency, designed to resist inflation by less expensive imports.
This topic is a sensitive topic on the agenda of the G20, paving the way for stress related to fiscal policy. Also, weak domestic demand and large trade surpluses of Germany and Japan will be another major theme at the meeting in Toronto.
Canada, whose importance is magnified in the G20 this year, for hosting the summit, is pushing to reduce deficits, asking his colleagues to halve the deficit by 2013. Canadian Finance Minister Jim Flaherty says he will ask during the Toronto meeting, concrete measures and clear targets for deficit reduction.
Austerity measures could be taken in Japan, a country that has accumulated huge debts in the last two decades. Prime Minister Naoto Kan, who took office on June 8, wants to double the tax on consumer products from the current level of 5% within a few years. “Fiscal policy, which relies excessively on the issue of bonds, is not sustainable,” he said in the inaugural address, quoting the example of Greece.
According to a senior official in the Obama administration, both industrialized countries and developing the works about the same way – reducing public spending and trying to convince markets and electorates that will reduce deficits over the next three to five years.
At the meeting this weekend will discuss a very important topic: “What is the biggest threat to economic growth in demand or an escalation of debt?”. “The main topic at the G20 will be as fast as it should be withdrawn tax incentives,” said Kenneth Rogoff, a Harvard economist and former chief economist of the IMF.
Economists say Obama administration, if government spending falls much faster rate, demand could contract, which would undermine economic growth and could lead to fall into a new recession, as happened in governing Hoover, when fiscal tightening early in 1930 led to the extension of economic crisis.
In Europe, fears about sovereign debt are deep. In the UK, maintaining a high level of government spending to support economic recovery was a key issue in the May elections. The new conservative government is to announce a multi-annual program spending cuts and tax increase.
What is the U.S. position?
U.S. but not in favor of spending increases, but rather those countries will not precipitate. “If confidence in our strength diminishes recovery should be prepared to respond as quickly as is necessary to avoid a slowdown in economic activity,” writes Obama, a week ago, leaders who will participate in the G20.
For the G20 summit, the U.S. wanted the talks to focus on growth stimuli, while Germany, France and other European countries wanted to focus more on financial regulation. But the U.S. won this fight.
G20 leaders agreed to tighten the rules yet on bank capital and liquidity until the end of 2010, when leaders will meet again in South Korea. But European governments make tax moves at different speeds. Strong economies like Germany and France have made budget cuts slow, while Ireland, Portugal and Spain will make painful cuts.
In turn, China is to some extent entitled to stay somewhat away from the debate on fiscal issues since his huge incentive plan in 2009, was funded almost entirely through the banking sector controlled by the state and not on account of debt public.
Brazil seeks a way to tame what may be an overheated economy. National elections, scheduled for October, could increase government spending, something happened in pre-election periods.11
