Finance chiefs of the world’s 20 leading economies are ringing alarm bells over the U.S. fiscal cliff and Europe’s debt woes at a meeting in Mexico this weekend as they look to push back deficit reduction targets to help boost growth.
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 on January 1, threatening to push the American economy back into recession and hit world growth.
But with the U.S. presidential election looming on Tuesday, dealing with the fiscal cliff has been delayed.
“The Americans themselves acknowledge that this is a problem,” a G20 official said on condition of anonymity. “The U.S. administration says it doesn’t want to fall off the fiscal cliff, but right now it can’t tell us how exactly it will address it because that issue is on ice ahead of the election.”
Tax cuts enacted under President George W. Bush are set to expire in January, when automatic spending cuts designed to put pressure on lawmakers to strike a long-term budget deal are also set to kick in.
“What remains a sort of key aspect is that the United States is not respecting the current commitments (to reduce its deficits) and does not have a credible fiscal consolidation plan,” one European official said.
The U.S. Congress will also soon have to raise the nation’s debt limit to avoid a default.
An initial consensus around the need for urgent action to prevent 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.
Via – CNBC