Obama urges G20 to keep up spending or endanger recovery (Roundup)

Jun 17, 2010, 20:47 GMT

Washington - US President Barack Obama urged other world powers to keep up public spending levels or risk eroding the global economic recovery, in a letter to other Group of 20 (G20) leaders obtained by the German Press Agency dpa on Thursday.

The letter sets up a potential clash with European leaders that have announced major austerity plans in the last weeks. Obama warned the world's recovery from a deep recession last year was extremely fragile.

'We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now,' Obama warned.

While he acknowledged that budget deficits must be cut back over the 'medium term,' Obama warned that past experience suggested an early pull-back in spending would lead to 'renewed economic hardships and recession.'

The White House would not immediately confirm the existence of the letter, which was dated Wednesday.

Obama said safeguarding the economic recovery must be the 'highest priority' of world leaders when the G20 bloc of major industrial and emerging powers meets for a summit later this month in Toronto.

'We meet at a time of renewed challenge to the global economy,' Obama said. 'We must act together to strengthen the recovery.'

With many European governments saddled by debt, the continent's leaders have pivoted recently to cutting their massive budget deficits, hoping to avoid widening a debt crisis that originated in Greece earlier this year.

A communique from G20 finance ministers after a meeting earlier this month notably left out calls to maintain fiscal stimulus measures until the global recovery was solidified, instead focusing on the importance of sustainable government budgets.

But Obama urged the G20 to 'reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.'

In a challenge to major exporters China and Germany, Obama said he was concerned by weak domestic consumer demand and a 'continued heavy reliance on exports by some countries with already large external surpluses.'

There remained 'significant weaknesses' across the G20 that were creating imbalances in the global economy, Obama said. In a more direct attack at China's currency, which the US considers undervalued, Obama said that allowing markets to determine exchange rates 'are essential to global economic vitality.'

Obama also foreshadowed other major divides between the United States and Europe over financial reform, calling for strong and coordinated oversight of derivatives markets that contributed to the near collapse of the financial sector in 2008.

There was no mention of worldwide bank levies or a tax on financial transactions to raise funds from banks that helped cause the financial crisis - two issues European Union leaders vowed to pursue at the Toronto summit.

Despite the massive debt crisis enveloping the eurozone, Obama suggested European governments may be moving too quickly in cutting back on public spending.

'It is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand, and national circumstances,' Obama said.

US lawmakers are considering fresh measures to stimulate job growth in the United States, which remains at nearly 10 per cent despite a resumption in growth.

Obama insisted he intends to cut the skyrocketing US budget deficit in half by 2013 and to an 'acceptable level' of 3 per cent of gross domestic product by 2015. But he strongly supports more short- term spending measures to keep the world's largest economy afloat.

'We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,' Obama said.