World leaders neared agreement on Saturday to halve their budget deficits within three years but, fearing spending cuts would jeopardize a fragile recovery, they planned to allow each country to set its own pace.
The G20 leaders of world's richest and emerging nations, holding a two-day summit in Toronto, also plan to welcome China's moves to loosen its currency while at the same time calling on export-dependent countries to stimulate demand at home, according to a draft communique obtained by Reuters.
Trillions of dollars in stimulus spending, bank bailouts and emergency loans to combat the worst recession in decades have saddled governments with budget problems.
Greece's debt troubles have trained attention on the need to get public finances back on track.
The synchronized slump has given way to a three-speed recovery, with Asia's growth roaring ahead while the U.S. recovery plods along and Europe lags behind.
That has made it harder for the G20 to agree on common policies, in contrast with its unity at the height of the financial meltdown.
The scars of this crisis are still with us, U.S. Treasury Secretary Timothy Geithner said.
We all need to act to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds.
The draft G20 statement acknowledges the multispeed recovery and the delicate balance needed between restoring budget discipline and sustaining growth.
There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery, the statement said. There is also a risk that the failure to implement consolidation when necessary would undermine confidence and hamper growth.
The statement shows the G20 agreeing to give countries a choice on whether to levy a tax on banks in order to recoup the cost of bailouts.
The United States and Europe have pushed for such a tax, while countries including Canada objected on the grounds that their banks acted conservatively during the credit boom and should not be punished for the recent financial crisis.
In Europe, the emphasis is on budget cuts to restore confidence. The United States wants the rest of the world to bolster domestic demand and not rely on Americans as consumers of last resort.
Argentina's President Cristina Fernandez said Europe's focus on cutting deficits is absolutely wrong, citing her country's searing experience with austerity which she said helped lead to a massive default in 2001.
It all ended in an implosion and in default, she told Reuters in an interview.
Angel Gurria, secretary-general of the Paris-based Organization for Economic Co-operation and Development, said ignoring the debt burden could drive up borrowing costs, but cutting back too soon may worsen unemployment.
Getting the balance right is primordial, he said.
Domenico Lombardi, a senior fellow with the Brookings Institution think tank, said European officials made sure to announce their emphasis on debt reduction well before the summit to ensure their policy objectives would not be watered down in Toronto.
In fact, the latest developments are aimed at diffusing tensions and reflect, in many ways, the policy stance of the main players before entering the meeting, he said.
CAMERON HITCHES A RIDE
Earlier on Saturday, the Group of Eight advanced economies met at a lake resort north of Toronto and said the recovery was fragile. They pledged to work for safer economic future.
While the recovery consolidates, we are at a crossroads, the G8 communique said.
The emerging hope and optimism must be directed toward building the corporate world safer, fairer, more inclusive and sustainable in which a greater attention is paid to the improvement and evaluation of real well-being of residents.
The G8 also took on security threats from Iran and North Korea, urging those countries to step back from moves that threaten international security.
Fog disrupted the leaders' journey south to Toronto. British Prime Minister David Cameron hitched a helicopter ride with President Barack Obama, while some other leaders resorted to slower ground transport.
They may be greeted by protesters. Black-clad anarchists faced off against riot police near the fenced-off site of the G20 summit in the largest demonstration in a week of protests against the meetings.
(Reporting by Reuters G20 team; Writing by Emily Kaiser;Editing by Chizu Nomiyama and William Schomberg)