UPDATE 4-U.S. fiscal cliff, Europe's debt woes worry G20

Sun Nov 4, 2012 6:19pm EST

* U.S. budget uncertainty looms large over G20 meeting
    * Ministers to discuss global debt, financial regulation
    * Talks precede U.S. election, China Communist Party
congress


    By Krista Hughes and Julien Toyer
    MEXICO CITY, Nov 4 (Reuters) - Finance chiefs of leading
economies pressed the United States on Sunday to avert a rush of
spending cuts and tax hikes that could hurt global output next
year, though some countries still saw Europe's debt crisis as
the No. 1 danger.
    Unless a fractious Congress can move quickly to reach a deal
after Tuesday's U.S. elections, about $600 billion in government
spending cuts and higher taxes are set to kick in from Jan. 1,
threatening to push the American economy back into recession.
    "They need to act swiftly on the fiscal cliff and then they
will need to put in place a medium-term fiscal consolidation, "
Australian Treasurer Wayne Swan told Reuters before mi nisters
fro m the Group of 20 countries gat hered fo r talks.
    "There was a strong demand (from Europeans) to be briefed on
the fiscal cliff, to get a more detailed idea of how the U.S.
may deal with the issue," on e G2 0 official said. 
    With a close U.S. presidential vote looming on Tuesday, as
well as Congressional elections, there has been a delay in
action to avert the so-called fiscal cliff and there is
uncertainty about whether Congress can reach a deal.
    "It's not that we can demand anything from the United States
two days before the election. We want them mainly to acknowledge
that there is a problem that has to be dealt with. And they did
that," said a leading European official.
    South Korean Finance Minister Bahk Jae-wan forecast the
global economy could suffer during the first quarter of 2013
because of the uncertainty over the so-called fiscal cliff.
    Nonetheless, he and other officials said they were counting
on Congress being able to find some kind of fix. "I think
compared to the euro zone crisis the fiscal cliff issue is much
easier to solve," Bahk told Reuters in an interview.
    The euro crisis, which erupted more than two years ago, has
eased after the European Central Bank said in September it was
ready to buy more government debt but investors are edgy about
when or whether Spain will request an international bailout and
how Greece's deep financial problems can be fixed.
    A draft communique being readied for the G20 policymakers
r eferred to serious risks facing the global economy, including
Europe's protracted debt crisis and potential problems in Japan.
    "Global growth remains modest and risks remain elevated,
including due to possible delays in the complex implementation
of recent policy announcements in Europe, a potential sharp
fiscal tightening in the United States and Japan, weaker growth
in some emerging markets and additional supply shocks in some
commodity markets," the draft said, according to a G20 source.
    
    
    
    The words on Europe seemed to be a reference to differences
within Europe over how t o build a banking union, considered an
important way to bolster the shaky euro zone financial system,
during 2013. France, Spain and Italy have been frustrated with
German demands for the new scheme.
    Few expect major agreements in Mexico with heavyweights such
as U.S. Treasury Secretary Timothy Geithner - expected to stand
down after the U.S. elections - European Central Bank chief
Mario Draghi and top Chinese officials skipping the meeting.
     
    GERMANY PRESSES ON DEBTS AND DEFICITS AGAIN
    In a move that could revive tensions with the United States,
Germany was pressing other countries on Sunday for new
commitments on deficit and debt reduction targets beyond 2016.  
 
    Germany, the euro zone's biggest economy which has faced
criticism for its insistence on belt-tightening to restore
confidence in the world economy, came to the meeting saying the
United States and Japan shared as much responsibility as Europe
for ensuring global economic stability. 
    "I think the focus is now increasingly balanced, on both the
U.S. and EU," a euro zone official said. "The difference being
that there is recognition of and support for the EU efforts,
while it is less clear how exactly the U.S. should address its
issue."
    Policy-makers are scrambling to stem a new slowdown in a
global economy still limping after the 2008-09 financial crisis.
    The G20's consensus of four years ago, which helped stave
off the risk of 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.
    "It won't be a straight choice between growth or fiscal
rebuilding, such a debate has dangerous aspects, " an official
from one G20 country said.
    The International Monetary Fund last month cut its forecast
for global growth to 3.6 percent for 2013, citing "familiar"
forces dragging on advanced economies: fiscal consolidation and
a weak financial system. 
    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. 
    Officials are concerned about Japan's own version of the
fiscal cliff, a potentially crippling funding shortfall just as
it risks sliding into recession. 
    U.S. and European officials are likely to come under
pressure from G20 peers for dragging their feet on implementing
the so-called Basel III accords. They would require banks to set
aside more capital - potentially hurting profits - which is one
of the key global responses to the financial crisis.
    Countries which fail to introduce the rules could face
sanctions, a Mexican finance official said.
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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