* US budget uncertainty looms large over Mexico meeting
* Ministers to discuss global debt, financial regulation
* Talks precede US election, China Communist Party congress
By Alonso Soto and Jan Strupczewski
MEXICO CITY, Nov 4 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 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 on Tuesday,
dealing with the fiscal cliff has been delayed.
"The Americans themselves acknowledge that this is a
problem," a G20 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."
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 G20 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.
U.S. and European officials are also likely to come under
pressure from G20 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 G20 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 on Monday.
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. Euro zone sources say they expect Spain to seek financial
aid from the euro zone in November.
A government source told Reuters on Wednesday that Prime
Minister Mariano Rajoy had not ruled out applying for a rescue,
but Rajoy has signaled he will not rush unless market conditions