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Updated Friday, February 5, 2010 4:07 pm TWN, By MARTIN CRUTSINGER, AP

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Financial turmoil strikes as G-7 officials gather

President Barack Obama set an example with a budget plan Monday that would boost job-creation efforts and raise the U.S. budget deficit to a record $1.56 trillion this year.

Obama has pledged to make jobs his No. 1 priority in part to counter Republican charges that he spent too much time during his first year in office concentrating on health care reform.

British Prime Minister Gordon Brown, whose Labor Party is trailing in polls ahead of likely June elections, is also stressing government stimulus. Britain's budget deficit as a share of its gross domestic product could reach 12 percent this year.

In Japan, where the economy has struggled for two decades, the government unveiled more stimulus spending last week. Other G-7 nations also have stimulus measures still in place. But some politicians in Germany and France have raised concerns about stoking inflation.

A year ago, the United States pressed Europeans to boost their stimulus packages to match the $787 billion U.S. effort. Europeans resisted for fear of escalating budget deficits. They instead enacted smaller stimulus packages.

Now, the focus is more on the duration of stimulus aid. Geithner is expected to argue that government programs to support jobs must be kept in place through this year to give business and consumer spending time to gather momentum.

But U.S. stimulus spending has raised fears that budget deficits could trigger inflation and further drive down the dollar's value. A further fall in the dollar would irk nations such as France and Germany. Their manufacturers have complained that the dollar's slide against the euro gives U.S. competitors a competitive edge. A weaker dollar makes U.S. goods cheaper in overseas markets and European goods costlier for American consumers.

Another issue on the agenda is financial reform where G-7 officials are working to develop a consensus on strengthening lax regulations that led to the financial meltdown in 2008.

The efforts to narrow differences were dealt a setback after the Obama administration last month surprised its G-7 allies by proposing tougher rules on risky bank activities.

"The Europeans were very upset that Obama was going off in a different direction than they had signed up for," said Nariman Behravesh, chief economist at IHS Global Insight.

British officials have said they don't need the strict limits on risky trading operations the administration is proposing. French Finance Minister Christine Lagarde has also expressed concern while German Finance Minister Wolfgang Schaeuble has stressed the need for global coordination on financial regulation.

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