The Group of 20 leading economies reached an uneasy compromise on Saturday over the speed of budget cuts needed to calm global financial markets rattled by a spreading debt crisis in Europe.
G20 finance ministers sought to bolster market confidence by declaring themselves ready to safeguard recovery and stressing the importance of putting their public finances in order.
Without referring specifically to the euro zone's debt troubles, the G20 said recent volatility in financial markets served as a reminder that significant challenges remained despite a faster-than-expected, though uneven, global economic recovery.
Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions, the G20 said in a communique issued after two days of talks.
The euro plunged to a four-year low on Friday, partly on concerns that Hungary could be facing a debt crisis similar to that of Greece, which had to turn to fellow euro zone members last month for a 110 billion euro bailout.
German Finance Minister Wolfgang Schaeuble said the meeting had agreed that a determined effort to cut back billowing budget deficits was unavoidable.
But he said the United States and other G20 members had also argued for greater efforts to pump up demand.
There are different opinions, Schaeuble told reporters.
Asked if there had been heated discussion, South Korean Deputy Finance Minister Shin Je-yoon said: Yes, of course: a lot heat, a lot of heat.
In a letter that he sent to ministers on Thursday, U.S. Treasury Secretary Timothy Geithner said global growth would fall short of potential unless other countries made up for a drop in demand as debt-strapped households tighten their belts.
Geithner singled out the need for Japan and European surplus countries -- code principally for export powerhouse Germany -- to boost domestic demand.
China, which also runs a big external payments surplus, should let its exchange rate rise to promote more spending at home, Geithner added.
Privately, U.S. officials have been urging fiscally conservative Germany, the largest euro zone member, not to rush into cutting its deficit, which is modest by European standards.
But speaking to reporters after the meeting, Geithner struck a more emollient note.
My sense is that they understand how important it is to Germany, to Europe and the world, that Germany be growing, he said.
The German government has a very good appreciation of the challenges ahead and how important growth is going to be not just to the success of their financial plans in Europe -- to help stabilize confidence in Europe -- but also to the success of the broader fiscal consolidation plans that are going to be important around the world, the Treasury chief added.
The lack of hard news from Busan, while not surprising, could prove to be a disappointment for financial markets when they reopen on Monday, said Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase Bank in Tokyo.
The G20 statement shows there's more difficulty in reaching a concrete agreement between so many countries, he said.
Sasaki said markets could be galvanized instead by news out of Hungary. A senior official in the new government said figures in the current budget did not resemble reality and that its 2010 deficit goal would be impossible to hit without changes.
I think it's big news. Concern over the euro countries will have a negative impact on Asian markets on Monday, Sasaki said.
With markets dismayed by Europe's fiscal mess, IMF Managing Director Dominique Strauss-Kahn said he was totally comfortable with the G20's call for troubled euro zone countries to quicken the pace of deficit cuts.
They have to consolidate strongly even if it has some bad effect on growth, he said, referring to Greece and other southern European countries saddled with huge debts.
The International Monetary Fund is helping the 16-nation euro zone to rescue Greece after Athens lost the confidence of bond markets and was unable to roll over its vast debts.
The two are also putting together a 750 billion euro ($910 billion) safety net for the euro zone in case other member countries fail to find buyers for their bonds. A forced debt restructuring would inflict heavy losses on euro zone banks.
Some countries have to go back rapidly to normalcy. Some others may go on with letting the stimulus expire on its own, Strauss-Kahn told a news conference.
On the other main issue in Busan, global banking reform, ministers reaffirmed a November deadline to draw up rules to beef up banks' capital buffers and to discourage excessive leverage and risk-taking -- a root cause of the 2008/09 crisis, which ended up costing taxpayers trillions of dollars.
The G20 said it would aim to implement the new standards by the end of 2012. But Bank of Italy Governor Mario Draghi, who heads the Financial Stability Board, said 2012 was more likely to mark the start of a phase-in period for the new rules.
Faced with opposition led by Canada, the G20 abandoned a proposal for a global bank levy to fund future bailouts. But the group said the financial sector should make a substantial contribution toward the cost of any new rescue.
To that end, leaders will be asked to endorse a set of policy options -- including a levy -- from which countries can pick and choose when they meet in Toronto in late June.
The recent turmoil has once again raised concerns about the resilience of our financial system and underscores the importance of moving ahead on our financial regulatory reforms, South Korean Finance Minister Yoon Jeung-hyun told the meeting.
(Additional reporting by Louise Egan, Gernot Heller, Huw Jones, Tetsushi Kajimoto, David Milliken, James Pomfret and Sophie Taylor; Writing by Alan Wheatley, editing by Jonathan Thatcher)