MEXICO CITY (Reuters) - Finance chiefs of leading economies pressed the United States on Sunday to avert a rush of spending cuts and tax hikes that could hurt global output next year, though some countries still saw Europe’s debt crisis as the No. 1 danger.
Unless a fractious Congress can move quickly to reach a deal after Tuesday’s U.S. elections, about $600 billion in government spending cuts and higher taxes are set to kick in from January 1, threatening to push the American economy back into recession.
“They need to act swiftly on the fiscal cliff and then they will need to put in place a medium-term fiscal consolidation,” Australian Treasurer Wayne Swan told Reuters before ministers from the Group of 20 countries gathered for talks.
“There was a strong demand (from Europeans) to be briefed on the fiscal cliff, to get a more detailed idea of how the U.S. may deal with the issue,” one G20 official said.
With a close U.S. presidential vote looming on Tuesday, as well as Congressional elections, there has been a delay in action to avert the so-called fiscal cliff and there is uncertainty about whether Congress can reach a deal.
“It’s not that we can demand anything from the United States two days before the election. We want them mainly to acknowledge that there is a problem that has to be dealt with. And they did that,” said a leading European official.
South Korean Finance Minister Bahk Jae-wan forecast the global economy could suffer during the first quarter of 2013 because of the uncertainty over the so-called fiscal cliff.
Nonetheless, he and other officials said they were counting on Congress being able to find some kind of fix. “I think compared to the euro zone crisis the fiscal cliff issue is much easier to solve,” Bahk told Reuters in an interview.
The euro crisis, which erupted more than two years ago, has eased after the European Central Bank said in September it was ready to buy more government debt but investors are edgy about when or whether Spain will request an international bailout and how Greece’s deep financial problems can be fixed.
A draft communiqué being readied for the G20 policymakers referred to serious risks facing the global economy, including Europe’s protracted debt crisis and potential problems in Japan.
“Global growth remains modest and risks remain elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States and Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets,” the draft said, according to a G20 source.
The words on Europe seemed to be a reference to differences within Europe over how to build a banking union, considered an important way to bolster the shaky euro zone financial system, during 2013. France, Spain and Italy have been frustrated with German demands for the new scheme.
Few expect major agreements in Mexico with heavyweights such as U.S. Treasury Secretary Timothy Geithner - expected to stand down after the U.S. elections - European Central Bank chief Mario Draghi and top Chinese officials skipping the meeting.
In a move that could revive tensions with the United States, Germany was pressing other countries on Sunday for new commitments on deficit and debt reduction targets beyond 2016.
Germany, the euro zone’s biggest economy which has faced criticism for its insistence on belt-tightening to restore confidence in the world economy, came to the meeting saying the United States and Japan shared as much responsibility as Europe for ensuring global economic stability.
“I think the focus is now increasingly balanced, on both the U.S. and EU,” a euro zone official said. “The difference being that there is recognition of and support for the EU efforts, while it is less clear how exactly the U.S. should address its issue.”
Policy-makers are scrambling to stem a new slowdown in a global economy still limping after the 2008-09 financial crisis.
The G20’s consensus of four years ago, which helped stave off the risk of 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.
“It won’t be a straight choice between growth or fiscal rebuilding, such a debate has dangerous aspects,” an official from one G20 country said.
The International Monetary Fund last month cut its forecast for global growth to 3.6 percent for 2013, citing “familiar” forces dragging on advanced economies: fiscal consolidation and a weak financial system.
Jose Angel Gurria, head of the Organization for Economic Co-operation and Development, said on Saturday the G20 should appeal to the United States to avoid the fiscal cliff, but added he was optimistic that Congress would strike a deal.
“I still believe it is not going to be applied,” Gurria said in an interview.
Officials are concerned about Japan’s own version of the fiscal cliff, a potentially crippling funding shortfall just as it risks sliding into recession.
U.S. and European officials are likely to come under pressure from G20 peers for dragging their feet on implementing the so-called Basel III accords. They would require banks to set aside more capital - potentially hurting profits - which is one of the key global responses to the financial crisis.
Countries which fail to introduce the rules could face sanctions, a Mexican finance official said.
Additional reporting G20 team in Mexico City; Writing by Simon Gardner; Editing by William Schomberg and Chizu Nomiyama