G-20 fears US sharp fiscal tightening

Associated Press Modified: November 5, 2012 at 6:47 pm •  Published: November 5, 2012
Advertisement

MEXICO CITY (AP) — Finance officials from the world's largest economies on Monday called on countries to reject protectionism and currency manipulation despite a raft of economic problems that include the U.S. deficit.

Meeting in Mexico City one day before the U.S. elections, the G-20 finance ministers issued a statement saying the United States faces "a potential sharp fiscal tightening."

"The United States will carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path, while avoiding a sharp fiscal contraction in 2013," the G-20 said in a statement.

Other delegates at the meeting expressed similar concerns.

"Whoever is going to be elected or re-elected tomorrow (in the United States) will be faced with that challenge, and will have to tackle that issue upfront, very shortly," said International Monetary Fund Managing Director Christine Lagarde.

"First and foremost the U.S. leadership needs to address quickly the so-called fiscal cliff and the debt ceiling, those two risks ... are clearly factors of uncertainty, not only for the U.S. economy but also for the global economy."

Agustin Carstens, the governor of Mexico's central bank, said the G-20 countries told the United States how important the issue was for continuing the world economic recovery.

While much of the attention at the two-day meeting focused on Europe's continuing financial crisis, E.U. officials were focusing the heat on the U.S. and other problems.

"The risks have decreased dramatically in the European area," said Olli Rehn, the EU's financial and monetary affairs commissioner. "There is agreement that solving the Euro-area crisis won't be enough for the world economy to have higher growth ... risks do also stem from the U.S. fiscal cliff, the high level of commodity prices, and the slowdown in emerging economies."

Despite the challenges, the G-20 statement said: "We are firmly committed to open trade and investment, expanding markets and resisting protectionism in all its forms."

In apparent reference to concerns that China or other countries might seek to combat a downturn in growth by manipulating currencies, the G-20 officials wrote, "we reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies."

Earlier Monday, Germany and the United Kingdom proposed that the world's biggest economies form a common front against tax evasion related to internet commerce and other revenue-shifting schemes, and said they received strong support at the meeting of officials from the G-20 nations.

"We've just been discussing it in the meeting we had. There was widespread support," U.K. Treasury chief George Osborne told reporters.

Continue reading this story on the...