World Financial Leaders Focus on Budget Crises
IQALUIT, Nunavut - A crisis in Europe over budget belt-tightening has upended global markets and seized the attention of financial leaders meeting in the Canadian Arctic.
Finance ministers and central bankers from the Group of Seven major industrial countries also planned to try on Saturday to settle differences on banking industry changes. There are fears that go-it-alone moves such as President Barack Obama's plan to break up big banks will further hamper the fledging economic recovery.
Canadian Finance Minister Jim Flaherty hoped his choice of the remote town of Iqaluit, population 7,000, where temperatures can dip to 40 degrees below zero in February, would make officials focus on the task ahead.
The United States was represented by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke. The G-7 consists of the United States, Japan, Germany, Britain, France, Italy and Canada.
The agenda Saturday included developments in the global economy, banking reform and proposals for more debt relief to Haiti, recovering from a devastating earthquake.
Developments in Europe provided a sobering reminder that G-7 policymakers still face major hurdles in repairing a broken global economy.
The Portuguese parliament's defeat of a government austerity plan triggered renewed concerns that it and other countries such as Greece and Spain were having trouble tightening budget controls to manage their budget deficits. That could threaten the economic recovery in Europe.
Stocks fell in Asia and Europe, while the Dow Jones industrial average clawed back to a small gain after suffering the largest single-day drop in seven months, on worries about the global economy.
"I think we have to be very mindful of the failure or potential failure of domestic economies," Flaherty told reporters.
On banking reform, the other G-7 countries were expected to press Geithner to explain the announcement by Obama last month that the United States would seek tougher rules to prevent risky actions by big banks from toppling the entire financial system.
British Treasury chief Alistair Darling has led calls for more coordinated action. He has said that the U.S. proposal does not address the biggest threat of the links between banks that can quickly transmit loan troubles at one institution to the entire system.
Flaherty said G-7 countries agreed on the need to continue with government stimulus programs to prevent the world from plunging back into recession. But Germany and France have expressed concern about how long stimulus aid should be maintained. They worry about soaring budget deficits and the risk of inflation.
Obama presented a budget plan this past week that would boost job-creation efforts and raise the U.S. budget deficit to a record $1.56 trillion this year. British Prime Minister Gordon Brown is also stressing government stimulus even though critics point out that the country's budget deficit as a share of its gross domestic product could reach 12 percent this year.
In Japan, where the economy has struggled for two decades, the government unveiled more stimulus spending last week.
Associated Press writer Rob Gillies contributed to this report.