World leaders hoping to shore up a fragile economic recovery will leave it to individual countries to decide how best to repair battered budgets without stunting growth.
The Group of Eight industrialized nations were meeting for a second day on Saturday at a lake resort north of Toronto, followed by a summit here of the larger G20 club of rich and emerging nations concluding on Sunday.
As the official agenda shifted toward economic and political discussions from aid and development, wedge issues such as shrinking government debt piles, regulating banks, and the value of China's yuan currency moved to the fore.
Our annual summit takes place as the the world begins a fragile recovery from the greatest economic crisis in generations, the G8 said in a communique on Saturday.
A draft G20 statement, excerpts of which were obtained by Reuters, showed the group agreeing to halve government deficits by 2013 and stabilize debt as a percentage of total economic output by 2016.
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A G20 source said no country-specific economic policy recommendations were expected to be included in the official statement to be released at the summit's conclusion on Sunday.
Instead, the group will likely agree on the need to reduce deficits while allowing countries to choose their own pace.
One G20 official said a draft statement welcomes China's announcement last weekend that it was loosening its grip on the yuan currency.
The phrase could be excised from the final communique, however, because it may not sit well with Beijing, which has insisted its exchange rate is a sovereign matter that has no place on the G20 agenda.
The group will also give countries a choice on whether to levy a tax on banks 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.
A global recession 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.
As a result, G20 unity is fracturing, with leaders disagreeing over how best to safeguard recovery. Unemployment remains high in most advanced economies, and growth has slowed since late last year.
Quite honestly, I think the world economy is faced with a number of uncertainties, India's Prime Minister Manmohan Singh told the Toronto Star. As it was gradually getting out of the deep depression or deep recession, we've had the euro zone crisis and the sovereign debt crisis.
In Europe, where Greece's debt troubles have trained attention on unsustainable public spending, 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.
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.
Despite the differences among countries, cameras showed friendly greetings as the G8 leaders took their places at a round table in the luxury Deerhurst resort. A smiling President Barack Obama shook hands with his counterparts and then chatted with France's President Nicolas Sarkozy.
While the recovery consolidates, we are at a crossroads, a draft G8 communique obtained by Reuters 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.
Thousands of protesters were expected in downtown Toronto on Saturday, marching from government buildings at historic Queen's Park down to the security perimeter for the G20.
Police were hoping for peaceful demonstrations but some organizers expressed concern that Saturday's march would bring together a wide array of causes with no clear marshals, raising the potential for breakoff groups confronting police.
Canadian Prime Minister Stephen Harper will later urge his G20 colleagues to commit to additional steps to support recovery, although he has also praised Britain for its early efforts to tackle a gaping budget deficit.
At a working dinner to kick off the G20 meeting, Harper will praise the group for progress in fulfilling pledges at its previous three summits, Harper's spokesman Dimitri Soudas told reporters.
The prime minister also will point out that if the G20 is to be the premier international economic forum it will need to take further steps to protect the recovery and set in motion strong, sustainable and balanced growth, he said.
Balanced growth was the key phrase when G20 leaders last met in Pittsburgh in September. Countries agreed to work together to iron out trade imbalances that pose a threat to the global economy.
Export-rich China is at the heart of the rebalancing debate. The United States wants China to let its yuan currency rise more rapidly in order to discourage exports, while Washington has pledged to change its borrow-and-spend ways.
While economic matters dominated the discussion, world leaders also planned to discuss global security issues such as North Korea. The G8 was considering a sharp rebuke of North Korea, which South Korea blames for the sinking of a warship in March that killed 46 sailors.
One G8 source told Reuters the group might issue a statement in which it would deplore North Korea's actions.
(Reporting by Reuters G20 team; Writing by Emily Kaiser;Editing by Chizu Nomiyama )