Obama vs. Europe On Deficits And More "Stimulus"

from Lou Dobbs.com and Reuters:

WRAPUP 3-Do-little G20 summit cheers spared bankers


Mon Jun 28, 2010 11:57am EDTStocks Allianz SEALVG.DE€83.30+1.29+1.57%12:00am CDT

* Banks relieved at G20 softening on levy, capital buffers * Europe sees green light for deficit-cutting austerity * BIS says debt reduction key to economic recovery * EU to stress-test 100 banks, including 15 Germans

(Adds ECB bond purchases, German stress tests) By Paul Taylor PARIS, June 28 (Reuters) - Bankers voiced relief on Monday

after world leaders abandoned a global bank levy and eased the

timetable for new capital requirements at a G20 summit in Canada

which posed questions about the forum's effectiveness. Shares climbed in Europe .FTEU3 and Asia, led by banks,

after the U.S. Congress adopted a landmark financial regulation

package on Friday, removing uncertainty, and the G20 dropped a

2012 deadline for more stringent risk-provisioning rules. "We welcome the fact that the G20 has stepped away from

imposing an arbitrary timeline for the implementation of new

measures and has instead agreed to phase-in requirements

agreements as and when national economic conditions allow," the

International Banking Federation said in a statement. Leaders of the main developed and emerging economies papered

over differences on the right balance between reviving economic

growth and cutting budget deficits at weekend talks in Toronto,

in what was seen as a setback for U.S. President Barack Obama. Unable to muster the unity of the past three crisis-era G20

summits, the leaders fell back on the "Sinatra doctrine",

leaving each country to do it "my way", move at its own pace and

adopt "differentiated and tailored" policies. European leaders got what they saw as a green light to

pursue austerity measures they consider essential to restore

market confidence in the euro dented by the Greek fiscal crisis

and wider concerns about high European sovereign debt. "To be honest, it was more than I expected," German

Chancellor Angela Merkel said of the G20's non-binding pledge to

halve budget deficits by 2013 and balance budgets from 2016. The United States had pressed the Europeans before the

meeting to avoid withdrawing economic stimulus measures

prematurely and urged countries with current account surpluses

such as Germany to boost domestic demand. "The positive outcome is that the European consolidation

programmes, which are moderate and appropriate given the

confidence crisis in Europe, have been endorsed and accepted by

others at the G20 level," Michael Heise, chief economist of

Europe's biggest insurer Allianz (ALVG.DE), told Reuters. The world's central bankers called on Monday for early and

resolute steps to cut deficits, warning that global recovery

could be derailed by surging interest rates unless industrial

economies take determined action to reduce debt. "High and rising levels of public debt imply significant

risks for the global economy," the Basel-based Bank for

International Settlements said in a report.

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For full G20 coverage [ID:nN18322198]

Comments by leaders on key issues [ID:nN26194879]

Stories on euro zone crisis [ID:nTOPNOW2]

BREAKINGVIEWS column on G20 [ID:nLDE65R0M0]

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FRANCE NEXT France is likely to be the next European state to announce

deficit-cutting steps this week, with the cabinet due to approve

measures on Wednesday to curb public spending, and further cuts

to be spelled out in September in a tough 2011 budget. "We have an untouchable goal to reduce the deficit level by

two points from 8 percent to 6 percent next year. That's never

been done before," Budget Minister Francois Baroin told France 2

television, adding the 2011 budget would be "the most difficult

in more than 30 years." Meanwhile, several banking sources in Frankfurt said the

European Union is preparing to stress-test more than 100 of the

biggest EU banks in July, representing some 50 percent of each

member state's banking balance sheet. EU finance minisers are due to decide next week how many

banks will be tested for their risk resilience, and on what

criteria. EU leaders have agreed the results will be made public

in an effort to restore market confidence. In a sign markets are still nervous about euro zone debt,

the premium investors charge to hold French, Belgian, Spanish

and Italian bonds rather than benchmark German bunds rose to the

highest levels since early June. [ID:nLDE65R0J2] [ID:nLDE65R0QH]

The interest rates at which banks lend to each other in euros

also rose. [ID:nEAP000464] The European Central Bank said it bought another 4 billion

euros in euro zone government bonds last week, the lowest weekly

sum to date, taking the total to 55 billion since it intervened

on May 10 to halt contagion from Greece's debt crisis.

[ID:nBSD002322] The Toronto summit exposed issues that are harder to resolve

when countries loosely united in the G20 are emerging from the

downturn at different speeds and with divergent priorities. China avoided a scolding over the weak yuan, which has

fuelled its export boom, by announcing a more flexible foreign

exchange regime a week before the summit and letting its

currency rise by 0.5 percent against the dollar. But Beijing

also refused to let the G20 praise it for the shift, insisting

the issue had no place in international forums. [ID:nLDE65Q0BK] On trade liberalisation, the G20 arguably moved backwards,

dropping 2010 as the target date for concluding the long-stalled

Doha round of World Trade Organisation negotiations. Opposition from Canada, Japan, Brazil and Australia, whose

banks did not need state bailouts during the crisis, thwarted

European calls for a common tax on banks to shield taxpayers

from the costs of rescuing the financial sector. On financial regulation, leaders endorsed a long phase-in

for new Basel III bank capital and liquidity rules, allowing

different speeds for different countries at the risk of

encouraging regulatory arbitrage. [ID:nN27191886] "The outcome makes it more difficult to guarantee stability

on financial markets if all the countries go their own

direction, because you get the possibility of regulatory

arbitrage in markets," Heise of Allianz said. (Additional reporting by Arno Schuetze and Jonathan Gould in

Frankfurt, Huw Jones, Steven Slater and Emilie Sithole-Matarise

in London and Elizabeth Pineau in Paris; writing by Paul Taylor,

editing by Sonya Hepinstall)