A trans-Atlantic tiff has been brewing ahead of this weekend's G-8 and G-20 summits as the US and Europe disagree on how to best ensure recovery from the global economic crisis.
Ahead of the meetings at a lakeside resort north of Toronto, US President Barack Obama wrote a letter to the G-20 leaders urging a pro-growth policy in what seemed a thinly veiled criticism of German plans to slash spending in a bid to tackle the country's deficit. It "is critical that the timing and pace of consolidation in each economy suits the needs of the global economy," Obama wrote.
Chancellor Angela Merkel, however, is not backing down from austerity. On Thursday she told German public broadcaster ARD that her center-right coalition was going to "implement the efforts we have agreed to," adding: "I do not think we should relent."
She said that sustained growth could only be guaranteed by getting a grip on deficits and debt. "I and the EU will argue this position. There are others who are not yet so convinced of this exit strategy."
Keeping a Lid on Germany's Deficit
Berlin is concerned at the spiralling deficits across Europe, particularly since Germany, Europe's largest economy, has been forced to shoulder the lion's share of the rescue package for Greece and other struggling European countries. To that end, Merkel's government announced sweeping cuts of some €80 billion ($98 billion) over the next four years in order to keep a lid on Germany's deficit.
Obama, meanwhile is concerned that the austerity measures in Europe could choke off the tentative recovery and even plunge the world into a double-dip recession, repeating the mistakes of the 1930s that led to the prolonged Great Depression.
German Finance Minister Wolfgang Schäuble joined the debate this week with a guest contribution to the business daily Handelsblatt, writing that "governments should not become addicted to borrowing as a quick fix to stimulate demand. Deficit spending cannot become a permanent state of affairs."
The tit-for-tat interviews and letters ahead of this year's summit are a far cry from the unprecedented united front just two years ago.
Back in 2008 the G-20 leaders found it easy to agree on a response to the global economic crisis by assembling giant stimulus packages to restart growth and financial rescue plans for the frozen banking system. Now that financial meltdown has been averted and economies are tiptoeing towards renewed growth, divisions are opening up on how best to proceed.
Germany is not the only European country opting for saving over spending. The new government in London introduced a drastic budget on Tuesday aimed at tackling the deficit by cutting public spending and raising taxes.
On his way to Canada, new British Prime Minister David Cameron told reporters that "this weekend isn't about a row over fiscal policy. We all agree on the need for fiscal consolidation. For me this G-20 is about putting the world economy on an irreversible path to recovery."
Yet it is unlikely that the summit will manage anything close to harmony. Merkel herself has admitted that she is expecting "controversial discussions."
On Friday German newspapers take a look at the summit and most are expecting little in the way of substantive agreements.
The center-left Süddeutsche Zeitung writes:
"The wars in Afghanistan and Iraq, as well as the financial and economic crisis, have brought America to the limits of its power. At the same time countries like China and India are gaining influence globally while Brazil and Iran are striving for regional dominance. Obama stretches out his hand (not always successfully) to all of these countries and seeks to expand power through involvement and cooperation. The superpower's new radically pragmatic motto is: give and take."
"This policy doesn't take much notice of old alliances, or surviving sentimentalities. Above all the Europeans -- for decades privileged partners and NATO allies -- have felt this. They experience the change of climate in Washington as coldness. And they are freezing. Obama may have mobilized new sympathy for the US among European people. However, in the seats of power across the old world there are increasing complaints that the president disdainfully sees Europe only according to how useful it can be."
"Ahead of Toronto, Obama's negotiators brazenly rejected all of the ideas that the Europeans had for regulating the financial markets. Germany was castigated as a parasite of the global economy. Obama's friends in the Democratic Party are currently working on a law that could threaten even close US allies with sanctions if they trade with Tehran. And in Afghanistan, Obama acts without consulting first: The outspoken Stanley McChrysal was not only a US general, he was also the NATO commander. The allies only learned about the change of personnel in Kabul by watching TV."
The center-right Frankfurter Allgemeine Zeitung writes:
"Save or take on more debts on a grand scale? This in short will be one of the conflicts at the summit. The chancellor has so far not been persuaded by the president's requests to support the economy with more stimulus measures. And in Canada she will also oppose the claim that Germany is not doing enough for the global economy. That is plainly nonsense. But because the trans-Atlantic dispute cannot be allowed to go too far, when it comes to growth strategies, both sides will read into the final communiqué whatever suits their own domestic agendas."
The financial daily Handelsblatt writes:
"There are no political solutions for most economic problems. The point is not that economic power is more in the hands of Bill Gates and Jeff Immelt or companies like Microsoft or General Electric. Rather it is that economic power is widely distributed."
"The World Trade Organization doesn't manage world trade, the International Monetary Fund doesn't control the world's currencies and the G-20 does not decide the future of the global economy. In the market system, no one manages trade, money or the entire economy."
"But the illusion that these kinds of summits are about big decisions is maintained by both sides. By the politicians who travel there and by the demonstrators who protest outside. The meetings are really only interesting for those who take part. Whether they have any meaning at all for anyone else is written in the stars."