BRUSSELS (Reuters) - Europe will tell the United States, Japan and Canada next week that it is acting to resolve its sovereign debt crisis, but that U.S. fiscal policy and slowing growth in Japan and China also pose risks to the global economy.
Finance ministers of Germany, France, Italy and Britain will meet those from the other major developed economies in the Group of Seven at a dinner in Tokyo on October 11.
“Developments in the euro area are not the only source of risks for the global economy,” says a document with the main European policy messages prepared for the G7.
“Risks emanate also from fiscal uncertainty in the U.S., the decelerating recovery in Japan and slowing growth ... in several emerging market economies, especially in China,” it said.
Euro zone states in the G7 have long been under pressure from the rest of the world to deal decisively with the debt crisis that has so far ensnared Greece, Ireland, Portugal and Spain and undermined investor confidence globally.
At the G7 meeting in Tokyo, which comes just before the annual meetings of the International Monetary Fund, euro zone officials will explain what they have done so far to deal with their problems and point a finger at Washington as a potential source of future economic disruption.
“In particular, the U.S. needs to agree by the end of the year on how to deal with the ‘fiscal cliff’ and, at the same time, adopt a credible fiscal consolidation plan,” the policy messages document said.
The “fiscal cliff” is the combination of across-the-board spending cuts set to take effect on January 2 and tax rises that kick in for all income groups, adding up to more than 4 percent of U.S. gross domestic product (GDP).
“This could throw the U.S. economy into recession and disturb the fragile global recovery,” the policy messages said.
“If policymakers fail to reach consensus on these two issues, the United States’ economy could face major uncertainties that would hurt economic growth in 2013 and would have significant spillovers to the rest of the world,” it said.
Another risk to growth comes from rising oil costs, European G7 members will say in Tokyo.
“We need to continue encouraging oil-producing countries to increase their output to meet demand, while drawing on excess capacity. We welcome Saudi Arabia’s commitment in Los Cabos to mobilize, as necessary, existing spare capacity to ensure adequate supply,” the policy messages said.
European G7 members will urge a global strategy that would boost private consumption and make China move more quickly to a market-determined exchange rate for its renminbi currency.
The document says that China allowed its currency to appreciate in real effective terms by around seven percent in 2011 but notes that appreciation stopped from the start of 2012.
Reporting by Jan Strupczewski; Editing by Ruth Pitchford