MEXICO CITY (Reuters) - Finance chiefs of the
world's 20 leading economies are ringing alarm bells over the U.S.
fiscal cliff and Europe's debt woes at a meeting in Mexico this weekend
as they look to push back deficit reduction targets to help boost
growth.
Unless a
fractious U.S. Congress can reach a deal, about $600 billion in
government spending cuts and higher taxes are set to kick in on January
1, threatening to push the American economy back into recession and hit
world growth.
But with the U.S. presidential election looming on Tuesday, dealing with the fiscal cliff has been delayed.
"The
Americans themselves acknowledge that this is a problem," a G20
official said on condition of anonymity. "The U.S. administration says
it doesn't want to fall off the fiscal cliff, but right now it can't
tell us how exactly it will address it because that issue is on ice
ahead of the election."
Tax
cuts enacted under President George W. Bush are set to expire in
January, when automatic spending cuts designed to put pressure on
lawmakers to strike a long-term budget deal are also set to kick in.
"What
remains a sort of key aspect is that the United States is not
respecting the current commitments (to reduce its deficits) and does not
have a credible fiscal consolidation plan," one European official said.
The U.S. Congress will also soon have to raise the nation's debt limit to avoid a default.
An
initial consensus around the need for urgent action to prevent a new
depression has given way to deep differences over issues such as
spending to boost growth and the right pace of belt-tightening to tackle
high debt levels.
Jose
Angel Gurria, head of the Organization for Economic Co-operation and
Development, said on Saturday the G20 should appeal to the United States
to avoid the fiscal cliff, but added he was optimistic that Congress
would strike a deal.
"I
still believe it is not going to be applied," Gurria said in an
interview before the meeting of G20 finance chiefs, which formally
starts on Sunday.
Officials
are also concerned about Japan's own fiscal cliff, and recognize that
previous commitments made by developed countries to cut their budget
deficits in half by 2013 and to stabilize their debt load by 2015 look
unfeasible.
U.S.
and European officials are also likely to come under pressure from G20
peers for dragging their feet on implementing the so-called Basel III
accords on financial regulations, the world's response to the 2007-09
financial crisis.
Despite
the issue's prominence, a G20 source said Russia wants to keep
financial regulation discussions at a more technical level when it takes
over the presidency of the group from Mexico after this meeting, which
ends on Monday.
Spain's
reluctance to seek financial aid is stoking worries that Europe's debt
crisis could further hurt world growth. The government is under pressure
to seek a bailout as it struggles to cope with high public debt and the
cost of recapitalizing its banks. Euro zone sources say they expect
Spain to seek financial aid from the euro zone in November.
A
government source told Reuters on Wednesday that Prime Minister Mariano
Rajoy had not ruled out applying for a rescue, but Rajoy has signaled
he will not rush unless market conditions deteriorate significantly.
(Reporting
by Alonso Soto, Alexandra Alper, Tetsushi Kajimoto, Lesley Wroughton,
Julien Toyer, Jan Strupczewski, Gernot Heller, Louise Egan, Krista
Hughes, Dave Graham and Michael O'Boyle; Writing by Simon Gardner;
Editing by Doina Chiacu)
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