Global finance chiefs pressed the U.S. to avoid harming the fragile world economy with excessive austerity, widening their focus on fiscal challenges beyond concerns over Europe’s debt woes.
On the eve of the U.S. presidential election, Group of 20 finance ministers and central bankers meeting in Mexico City pushed for swift action to prevent the $607 billion in tax increases and spending cuts that will hit in January unless lawmakers act.
As President Barack Obama and Republican Mitt Romney tussle for the White House, the fear of foreign officials is that failure to limit the damage of the so-called fiscal cliff would tip the world’s largest economy into recession and drag their countries down with it. Europe, the subject of the G-20’s ire for the past three years, remained under pressure amid calls to take promised crisis-fighting steps.
“I expect each country to voice its hopes for firm efforts toward a resolution of the fiscal cliff problem,” Bank of Japan Governor Masaaki Shirakawa told reporters late yesterday. “It’s important for each country to work toward stabilizing its own economy.”
A draft of the statement to be issued by the G-20 today identifies the potential for a sharp fiscal pullback in the U.S. and Japan as a danger to an already modest expansion, said an official from one of the countries who declined to be identified because the text hasn’t been finalized.
While Europe is enjoying some respite from its debt crisis after the European Central Bank pledged to buy bonds, the official said the draft cautions against delaying efforts to deliver a permanent solution.
The fiscal frailties threaten to offset glimpses of economic improvement that followed a mid-year worldwide slump. Data last week showed American employers hiring more workers than forecast in October and Chinese manufacturing expanding for the first time in three months.
“There is nothing more important to the global economy than to lift growth in the world’s major advanced economies,” Australian Treasurer Wayne Swan said in a statement today.
The G-20 represents the world’s leading industrial and emerging economies. Underscoring the limits of policy coordination when national action is required, several key officials, including U.S. Treasury Secretary Timothy F. Geithner and ECB President Mario Draghi, are skipping the meeting. Other topics being discussed include banking regulation and reform of the International Monetary Fund.