MEXICO CITY: Finance chiefs of the world’s 20 leading economies are ringing alarm bells over the US 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 US Congress can reach a deal, about $600bn 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 US presidential election looming tomorrow, dealing with the fiscal cliff has been delayed.
“The Americans themselves acknowledge that this is a problem,” a G20 official said. “The US 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.
The US 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.
Officials are also concerned about Japan’s own fiscal cliff, and recognise that previous commitments made by developed countries to cut their budget deficits in half by 2013 and to stabilise their debt load by 2015 look unfeasible.
US 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.
Reuters
