G20 parts ways in search of lasting recovery

TORONTO, (Reuters) – World leaders agreed yesterday  to take different paths for cutting budget deficits and making  their banking systems safer, a reflection of the uneven and  fragile economic recovery in many countries.

In a reversal from the unity of the past three crisis-era  Group of 20 summits, the leaders left room to move at their own  pace and adopt “differentiated and tailored” policies.

The G20 rich and developing economies tried to balance  their contrasting priorities by pledging to halve budget  deficits by 2013 without stunting growth, and to clamp down on  risky bank behavior without choking off lending.

“Our challenges are as diverse as our nations,” U.S.  President Barack Obama said. “But together we represent some 85  percent of the global economy, and we have forged a coordinated  response to the worst global economic crisis of our time.”

In a sign of how much work was involved to forge this G20  consensus, negotiators spent at least 45 hours drafting the  summit’s final communique, said Dominique Strauss-Kahn, head of  the International Monetary Fund.

The G20 allowed each country space to decide how to proceed  with controversial provisions such as taxing banks to recoup  bailout costs and implementing tougher bank capital rules.

It also steered clear of confrontation with China by  dropping, at the last minute, a specific mention of the yuan  currency, even though Beijing has just allowed it to resume its  rise against the dollar.

The G20, which includes emerging economic powers as well as  the developed economies where the economic trouble started,  united last year to throw trillions of dollars into the battle  against recession.

But that unity has begun to fray as countries emerge from  crisis at different speeds and with different policy needs.  Emerging Asian economies such as China have come roaring back  while the U.S. recovery remains tepid and Europe lags behind.

“The G20 is fragmented as it transitions out of its role as  a crisis-fighting committee,” said Tom Bernes, vice president  at the Center for International Governance Innovation in  Toronto.

“While G20 leaders agree on the need for stronger financial  regulation, actual details continue to be vague and lacking a  solid deadline….  There is a huge unfinished agenda.”

Obama acknowledged talk of G20 divisions but said the  meetings showed these countries could come together and embrace  shared interests. “We can bridge our differences,” he said.

Europe claims victory

The Toronto meeting was billed as a final check-up before  the next G20 summit in November in Seoul. That meeting is the  deadline for leaders to agree policies on issues including bank  capital rules, financial regulation, and voting rights at the  International Monetary Fund.

The G20 must also show progress on a promise to rebalance  the global economy. That means export-reliant nations such as  China and Germany need to look inward for growth and indebted  countries, including the United States, need to change their  borrow-and-spend ways.

As the leaders met inside a downtown Toronto conference  centre encircled by a tightly controlled security perimeter,  police clashed with protesters outside the zone and more than  500 people were arrested.

Since the G20 leaders last met in Pittsburgh in September,  Greece’s debt troubles have shifted the focus toward damaged  public finances. Britain and Germany have joined Greece, Spain,  Italy and other smaller European countries in putting forward  plans to reduce spending.

The United States has preached patience, cautioning that  the sudden removal of growth supports could tank the economy.  European leaders have countered that fixing finances will  improve confidence, and that is essential for growth.

European officials took the G20’s commitment to cut  deficits as a clear sign that the rest of the world had come  around to Europe’s point of view.

“The EU came to Toronto with a clear agenda. The summit’s  result reflects widespread convergence around Europe’s  approach,” European Union officials said in a statement.