Group of 20 (G20) nations should beware of putting measures in place to curb deficits so quickly that they risk pushing the global economy back into recession, top US economic leaders warned on Tuesday.
"We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth," US treasury secretary Timothy Geithner and top White House economic adviser Lawrence Summers wrote in a Wall Street Journal article.
"Without growth now, deficits will rise further and undermine future growth," they said, underlining what is expected to be a key point of difference between the United States and other G20 members when their political chiefs meet at the end of this week.
There have already been signs of differing approaches among G20 members about how to better insulate the global economy against a repeat of the devastating 2007-2008 crisis that caused a severe recession. Germany, France and Britain said on Tuesday they were introducing a bank levy, without waiting for the G20 meeting.
Geithner and Summers said it was vital for the G20 to work together to get the global economy back onto a sounder track.
"While the US was the major source of demand for the world economic growth before the crisis, global demand must rest on many pillars going forward," they wrote.
The G20 includes not only the old-line developed nations that form the smaller Group of Seven but also key developing nations like China, Brazil and Korea that produce a growing share of global output.
Geithner and Summers said the developing nations could promote global stability by introducing measures to boost domestic growth, relying less on exports, and by adopting flexible currency exchange rates as Beijing said on the weekend that it was doing.
"We welcome China's recent decision to do so and look forward to its vigorous implementation," Geithner and Summers said.
They said that a "global framework for financial regulation" was needed to reduce excessive risk-taking that helped fuel the financial crisis and to make sure that taxpayers aren't placed on the hook for bailing out banks.
"Critically, we need to reach agreement internationally on reducing leverage and raising capital requirements, improving both the quantity and quality of capital," Geithner and Summers said.
