MEXICO CITY – Finance chiefs of leading economies pressed the United States on Sunday to show how it can avert a series of spending cuts and tax hikes that could hurt global output, though some countries saw Europe's debt crisis as the No. 1 danger.
Unless a fractious U.S. Congress can reach a deal, 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.
"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," an official from one of the Group of 20 countries said of preliminary talks in Mexico City before ministers gathered later on Sunday and on Monday.
With a close U.S. presidential election looming on Tuesday, action to avert the so-called fiscal cliff has been delayed and there is uncertainty that Congress can reach a deal, putting many countries on alert about risks to already weak growth.
South Korean Finance Minister Bahk Jaewan forecast the global economy could suffer adverse effects during the first quarter of 2013 because of uncertainty over the issue.
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.
A draft communiqu�� being readied for the G20 policymakers sees further serious risks to 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 build a banking union, including a single banking supervision mechanism within euro zone member states, throughout 2013. France, Spain and Italy have been frustrated with German demands for the new scheme.
With several heavyweights like 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 top Chinese officials skipping the meeting, few expect any major agreements.
GERMANY PRESSES ON DEBTS AND DEFICITS AGAIN
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.
The euro zone's biggest economy, which has faced criticism for its insistence on belt-tightening as a way 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 US 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.
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 2007-09 financial crisis.
Countries which fail to introduce the rules could face sanctions, a Mexican finance official said.
(Writing by Simon Gardner; Editing by William Schomberg and David Gregorio)