U.S. fiscal cliff looms large at Mexico G20 meet

Thu Nov 1, 2012 4:39pm EDT
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MEXICO CITY (Reuters) - World finance chiefs this weekend will press the United States on how it can prevent its fiscal problems from hitting the global economy and will seek reassurance from Europe that it has a grip on its debt crisis.

U.S. and European financial officials are also likely to come under pressure from peers when they meet in Mexico City for dragging their feet on implementing the so-called Basel III accords, the world's response to the 2007-09 financial crisis.

Coming just before the U.S. presidential election and days ahead of China's Communist Party congress, several top finance ministers and central bankers are skipping their twice yearly scheduled meeting with their peers from the Group of 20, which comprises the leading developed and developing economies.

One G20 official described the timing as the "worst date possible" and people involved in the talks said no major agreements were expected.

U.S. Treasury Secretary Timothy Geithner - who is expected to stand down soon after the U.S. elections on Tuesday - European Central Bank chief Mario Draghi and French Finance Minister Pierre Moscovici will all be absent, while sources said Brazilian Finance Minister Guido Mantega would skip and that top Chinese officials were unlikely to attend.

"Every member country is worried about the U.S. fiscal cliff," one G20 source said on condition of anonymity. "What we will do is add more pressure on U.S. officials and warn them that this is a real danger to the world economy. I believe they understand the danger here, but not much can be done before the election."

Unless the fractious U.S. Congress can strike a deal, about $600 billion in U.S. spending cuts and higher taxes are due to kick in on January 1, threatening to push the U.S. economy back into recession and hurt world growth.

Not only are tax cuts enacted under President George W. Bush set to expire, but automatic spending cuts designed to exert pressure on lawmakers to strike a long-term budget deal will also take effect. The U.S. Congress will also soon face the need to raise the nation's debt limit to avoid a default.

A German government official said on Thursday that Germany would ask the United States again what it was planning to do about the fiscal cliff.   Continued...