US-Europe Fiscal Policy Spat Overshadows G20 Summit

The dispute between the United States and Europe over the proper timing for withdrawing fiscal stimulus policies has threatened to overshadow the upcoming G-20 Summit in Canada.

Experts predict that leaders of the largest economies will give priority to issues concerning global economic recovery during the two-day meeting. Zhang Ru has more.

The global economy is showing positive signs of recovery. But Huang Ying, a researcher at the China Institutes of Contemporary International Relations in Beijing, warns that potential threats could drag the economy into a downward trend.

"The sovereign debt crisis in Europe may spread to broader areas if it is not properly handled. And we are still not assured whether the world economy can stay on the recovery track on its own if an exit strategy is implemented. So for the Toronto summit, I am afraid that the G-20 leaders will be more preoccupied with how to strengthen the fragile recovery than other issues."

As the summit approaches, there seems to be no consensus on what should be done to assure strong and sustainable global growth.

Just a week ahead of the G-20 Summit, U.S. President Barack Obama warned his fellow G-20 leaders in a letter not to withdraw fiscal stimulus too soon.

But the European Union has called on the G-20 group of nations to coordinate with each other in planning exit strategies from stimulus measures.

Sun Jie, a researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, explains the reasons behind the disagreements.

"The key gauge used by the Untied States to set its economic policy is the unemployment rate. In recent months, the unemployment rate in the U.S. has remained close to 10 percent, which is still very high. So it's not a proper time for the U.S. to move towards exit strategies. "

Sun Jie says figures from the U.S. Federal Reserve show that despite its easy monetary policy, American consumers and private enterprises are still not willing to borrow money from banks amid economic uncertainties.

He says to confine the spread of the sovereign debt crisis that has engulfed Greece, European nations must arrange exit strategies by cutting their budgets.

This is why G-20 leaders may not forge a consensus on the issue during the summit.

"The G-20 Summit can only serve as a platform for countries to be fully engaged in discussions. More importantly, the U.S. and Europe have a large share of the world's GDP. They also have a great impact on the trend of the global economy. So their economic polices and views on the economic situation can be used by other countries as a reference."

The G-20, which groups 19 countries plus the European Union, accounts for 85 percent of the world's gross national product. Experts predict that countries will also debate issues such as a global tax on banks and financial reforms.

For CRI, I'm Zhang Ru.