Leaders differ on how to nurture a global recovery

[June 25, 2010]  TORONTO (AP) -- World leaders, facing serious differences over the best way to nurture a fragile global recovery, are agreeing to disagree in a variety of key areas.

Even before the economic talks were to begin over lunch Friday, the leaders engaged in a series of dueling letters and interviews that exposed their conflicts.

The three days of talks were starting at a lakeside resort north of Toronto where the Group of Eight countries -- the United States, Japan, Germany, France, Britain, Italy, Canada and Russia -- will discuss proposals to increase support for maternal and child health care in poor nations and hold an outreach meeting with leaders of seven African nations.

The G-8 will also spend time exchanging views on hot-button issues, such as Iran's nuclear program and possible sanctions on North Korea following the sinking of a South Korean warship.

President Barack Obama, who was arriving after a tough two months dealing with the worst offshore oil spill in U.S. history, was not getting a lot of support for his cautionary warnings that countries should not pull back their stimulus efforts too quickly.

Britain, Germany, France and Japan have all unveiled deficit-cutting plans. Canadian Prime Minister Stephen Harper, the host for the summit meetings, was urging the countries to agree to concrete deficit-reduction goals as a way of restoring investor confidence following the turmoil caused by the Greek debt crisis.

Asked about the disputes over stimulus spending versus deficit reductions, Canadian Finance Minister Jim Flaherty said, "One size doesn't fit all."

The countries were also struggling to resolve major differences over reform of the financial system, including setting tougher standards for bank capital, the cushion banks must hold to cover losses, and over whether countries should impose taxes on banks to reimburse taxpayers for the bank bailouts and to build up funds to cover future bailouts.

Toronto was braced for the potential of disruptive protests that so far have not materialized.

Toronto's downtown core resembled a fortress with a big steel and concrete fence erected over several blocks to protect the summit site. Canadian police patrolled the Lake Ontario waterfront from boats and jet skis. The number of security forces protecting the summit meetings was estimated to total 19,000, drawn from all over Canada.

The G-20 leaders' summits began in the fall of 2008 in response to the global economic crisis that struck with fury after the collapse of Lehman Brothers, a major U.S. investment bank.

At that time, the leaders joined to assemble multibillion-dollar support packages to restart economic growth and financial rescue efforts to rescue a froze global banking system.

But now that the banks are back from the brink and the world's economies are growing again, unity is proving more elusive.

Obama sent a letter last week warning that removing the massive government stimulus spending too quickly could represent a repeat of the disastrous mistakes of the 1930s that prolonged the Great Depression.

But Harper sent out his own letter urging establishment of firm deficit reduction goals.

Some leaders didn't appreciate being lectured by Obama on the need for countries running trade surpluses, which would include China, Germany and Japan, to do more to boost domestic spending to help the global economy while U.S. consumers, long the driver of global growth, begin to save more.

"German export successes reflect the high competitiveness and innovation strength of our companies," German Chancellor Angela Merkel said in an interview published in The Wall Street Journal. "Artificially reducing Germany's competitiveness would be of no use to anyone."

Britain, Japan and, unexpectedly, Australia were sending new leaders to the G-20 summit. Australia's ruling Labor Party abruptly ousted Prime Minister Kevin Rudd. Julia Gillard replaced him, becoming Australia's first female leader. Wayne Swan, her new deputy and the country's finance minister, was to represent Australia at the Canadian meetings.

It will be the first appearance at the G-20 table for British Prime Minister David Cameron and Japanese Prime Minister Naoto Kan. And both were bearing deficit-cutting messages.

Cameron comes after his Conservative government unveiled an emergency budget Tuesday that contained higher taxes and the toughest cuts in public spending in decades. And Kan said this week that deficit reduction would be his top agenda item at the Canadian meetings and that Japan would soon start debating a possible sales tax increase to rein in the nation's bulging deficits.

Both are trying to avoid Greece-style government debt crises.

Talking to reporters on the flight from London, Cameron sought to play down any differences with the United States.

"This weekend isn't about a row over fiscal policy. We all agree about the need for fiscal consolidation," he said. "This is about putting the world economy on an irreversible path to recovery."

After the G-8 discussions in the Muskoka lake region of Canada, Obama and the other G-8 leaders will reconvene in Toronto for the G-20 summit.

The larger group of nations, including such major developing powers as China, Brazil and India, will begin discussions over dinner Saturday night and will wrap up after further talks on Sunday.

The G-20 final statement expected to be issued on Sunday notes that "while growth is returning in many countries, the recovery is uneven and fragile, and unemployment remains at unacceptable levels," according to an early draft that the environmental group Greenpeace said it obtained.

[Associated Press; By MARTIN CRUTSINGER and JEANNINE AVERSA]

Aversa reported from Washington. Associated Press writers Rob Gillies, Jane Wardell and Tom Raum contributed from Toronto.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.