Leaders weigh stimulus vs. austerity at G-20
By E. Eduardo Castillo and Jack Chang ,AP
June 21, 2012, 12:39 am TWN
LOS CABOS, Mexico -- With major European economies on the brink of collapse, leaders concluding an annual Group of 20 meeting sought Tuesday to reassure the world that they would find a way to put out the debt-fueled economic wildfire that has threatened banks, wiped out jobs and toppled governments across the continent.
But the presidents and prime ministers gathered in this seaside resort seemed content to delay any major decisions for a while longer, releasing only a general statement that stopped short of committing any nations to greater spending unless conditions worsen and urging fiscal responsibility.
To ease the immediate market turmoil in Europe, Italian Prime Minister Mario Monti proposed using the continent's bailout funds to buy the government bonds of financially weak states like Spain and Italy. That would lower their borrowing costs, easing the risk they would need bailouts to finance its debt.
Monti told reporters at a briefing that using the current bailout fund's 440 billion euros (US$555 billion) “was one of the topics of conversation,” but indicated that no decisions had been taken. He will meet the leaders of Germany, France and Spain in Rome on Friday to come up with a plan to present next week at a European summit in Brussels.
But while such a deal would help stabilize debt markets in Europe in the short term, the continent's fundamental problems of low economic growth and high debt would take time to solve — and leaders remained divided over the best way to fix them.
For months, governments and economists have weighed two different paths to ease the financial crisis: spending more to try to stimulate growth or slashing budgets.
The battle lines in the stimulus-versus-austerity debate were clearly drawn among the 24 heads of state gathered in a heavily guarded convention hall lined by a moat. The conservative leaders of the United Kingdom, South Korea and Germany came out decisively for austerity, warning that budget cuts were crucial to restoring fiscal order and worldwide confidence.
“The countries in crisis will have to find measures that might be painful and politically unpopular in the short term, but nonetheless they must pursue this path,” South Korean President Lee Myung-bak said Monday.
On the other side were left-leaning governments such as those in Argentina, Brazil and France that have denounced the German-imposed austerity plan for struggling countries such as Spain and Greece and pushed for more stimulus spending.
President Barack Obama said European leaders “grasp the seriousness” of their debt crisis and are moving with a “heightened sense of urgency” to find a solution.