Europeans defend austerity measures before G20 summit

16:45, June 25, 2010      

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European policymakers defended budget austerity plans yesterday ahead of a Group of 20 summit set to pit calls for fiscal restraint against warnings that heavy cost-cutting threatens recovery.

European Central Bank President Jean-Claude Trichet said it was wrong to claim that budget austerity would cause stagnation, and German Chancellor Angela Merkel said her country would stick to plans to save 80 billion euros in the next four years, its biggest program of fiscal cutbacks since World War II.

"We'll enact the measures that we've agreed upon," Merkel said. "I believe we should not let up."

After winning plaudits for guiding the world economy through the financial crisis, splits have emerged among G20 powers over which policy priority ought to take precedence now - supporting still-shaky growth or shrinking budget deficits.

Markets remain jittery about the debt crisis and the risk of an economic slowdown in the run-up to the meeting of G20 leaders this weekend, with the cost of protecting government debt against default hitting a record high for Greece and jumping in other peripheral countries such as Portugal.

The draft version of the Toronto summit communique, obtained by Reuters and dated June 11, said the recovery was "uneven and fragile" and warned against complacency.

"Fiscal challenges in many states are creating market volatility, and could seriously threaten the recovery and weaken prospects for long-term growth," it said.



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