Plan to pledge new fiscal stimulus for world economy dropped

A day before the world leaders gather here for the G20 summit, the ambitious plan to pledge a new "fiscal stimulus" to revive the world economy has been quietly dropped to show unity at the time of economic crisis.

Britain's chancellor of exchequer Alistair Darling led an effort by ministers to dampen expectations ahead of the summit, which had been billed as central to prime minister
Gordon Brown's call for a "global new deal".

As the British premier prepared for a round of pre-summit talks, Darling warned against being "overly optimistic" while David Miliband, the foreign secretary, said there would be no "rabbits out of hats".

Brown originally hoped to pledge a new stimulus package of about USD 2 trillion to boost the world economy. Miliband also disowned a leaked draft retaining talk of a
USD 2 trillion boost, insisting that it was an old document that merely lists spending packages already under way across the world.

"This G20 summit was never about writing national budgets. Let us not hear that somehow the Anglo-Saxons are for fiscal policy and the other Europeans are somehow for regulation -- you have got to do both," he said.

vette Cooperat, the chief secretary to the treasury, signalled that there would not be a co-ordinated round of spending announcements to shore up the world economy.  The pledge to uphold free trade has already been cast into doubt by China, which announced a raft of export tax rebates on Friday to shore up exports.

Top world leaders including Indian prime minister Manmohan Singh and US President Barack Obama are expected to attend the summit at Excel Centre in London's Docklands. Meanwhile, Australian prime minister Kevin Rudd, who will hold pre-summit talks with Brown tomorrow, said it was now up to the International Monetary Fund to determine how much additional support the world economy would need next year, and that there had never been any expectation that the decisions on that package would be taken in London.

"That was never the intention," he said. "A mechanism has been established for us to reflect on for what we need for the future. There will be a further summit, well in time for 2010, I assume, which will actually look at what metrics, what numbers, will be needed then."

Italian premier Silvio Berlusconi has already suggested that the G20 leaders meet again in Sardinia in July at the end of the scheduled G8 summit, but on Sunday Downing Street suggested that a further summit at which this week's issues might be revisited would be unlikely to be held before 2010.

The EU will be heavily represented at the G20, occupying more than one third of the seats -- the UK, Germany, France, and Italy as well as Spain and the Netherlands plus the Czech EU presidency and Jose Manuel Barroso, the European commission chief.

Drafts of the proposed communique for the summit showed that leaders continued to believe the world economy could return to growth as early as next year. Two versions of the text to be agreed at the meeting in London show an emphasis on creating jobs and tighter regulation of banks and hedge funds.

Central to Gordon Brown's so-called "global new deal" is a new international organisation to provide early warnings of future financial crises, according to an early draft leaked to the German magazine Der Spiegel.

It also includes a call for governments to agree joint guidelines on executive pay by the end of the year and an ambitious attempt to set a growth target for the world economy
for 2010. A 24-point draft leaked to the Financial Times also mentions sanctions against tax havens and curbs on executive pay and bonuses.

It points to a hope that existing stimulus efforts by governments, worth about 1.4 trillion pounds will create up to 20 million new jobs and will boost global output by two
percentage points.

"We are determined to restore growth, resist protectionism and to reform our markets and institutions for the future," both versions state.

Downing Street dismissed the paper featured in Der Spiegel as "an old draft" which had since been modified, while declining to comment on the later leak.