The leaders of the world's industrialized and emerging countries are converging on the Canadian city of Toronto for crucial talks on overcoming the global financial crisis and boosting economic growth.
Transatlantic ties are due to be tested at the G8 summit
At the summits of the G8 and G20 nations to be held over this weekend, German Chancellor Angela Merkel is expected to play a key role in the discussions. Merkel wants to press ahead with tighter regulation of financial markets, but at the same time faces widespread criticism for not doing enough to help overcome the economic crisis.
In recent months, Merkel has appeared to be on something of a crusade aimed at re-establishing the supremacy of politics over economics, as she herself put it.
And she is expected to pursue this crusade fiercely at the Toronto summit. Merkel blames rampant financial speculation, not only for the meltdown in the banking sector in 2008, but also for the debt crisis that has engulfed most industrialized nations this year.
Merkel gunning for regulation
Merkel is heading to Canada with heavy weaponry to push for a global bank tax, a levy on financial transactions and tighter financial market regulation.
"People are increasingly falling into despair about politics," Merkel told parliament recently. "It would be extremely frustrating, if a majority of countries agreed to introduce a bank tax, for example, but a minority of countries again blocked this measure," she warned.
Merkel will have a tough row to hoe defending German austerity measures
Surprisingly, the chancellor is being supported in her drive by Germany's banks. They have come out in favor of creating an emergency fund, said Manfred Weber, a senior executive with the German Banking Association.
"We need instruments that enable us to overcome a crisis without relying on taxpayers' money. That's why we support a bank tax to be levied on all market players, including hedge funds and insurance companies, so that we can provide emergency funding for banks in a future crisis," Weber said.
Strong objections to German austerity plans
Countries like summit host Canada, however, have emerged relatively unscathed from the financial crisis and oppose the idea of a new tax. They may manage to scupper the idea of a global bank tax, and force the European Union to go it alone on the issue, as Merkel has repeatedly suggested.
The chancellor is similarly firm in her determination to push through a tax on financial market transactions; admittedly a plan which enjoys even less support among G8 powers.
Instead, Merkel's opponents have returned fire, blaming her government for undercutting the fledgling upswing in the global economy.
US President Barack Obama warned recently that an exit too early from stimulus measures risked eroding economic recovery - a warning seen as targeting Merkel and her austerity package, including budget cuts totaling 80 billion euros. The German economist Gustav Horn believes Obama's criticism is justified.
"Germany should not introduce a savings package that is too harsh on the economy because that would diminish imports further and lead us into some kind of recession next year. President Obama is right in his criticism that Europe should do more to get a sound upswing," Horn said.
To spend or not to spend - that is the question
Transatlantic showdown is certain
Angela Merkel appears to have rallied most of the European Union states behind her agenda. But, unless she can get the rest of the leaders attending the Toronto summit on board, that may turn out to be a hollow victory.
In a massive effort to stymie criticism ahead of the summit, Merkel and German Finance Minister Wolfgang Schaeuble launched a media blitz on Thursday, choosing prominent English-language newspapers in an ongoing war of words with Washington.
"Governments should not become addicted to borrowing as a quick fix to stimulate demand," wrote Schaeuble in the Financial Times. "Deficit spending cannot become a permanent state of affairs," he added.
Merkel defended her plans and said that even the International Monetary Fund acknowledged that Germany has done "more than in many other countries" to stimulate growth.
In the run-up to the G8 meeting, however, billionaire financial investor, George Soros, issued a withering attack on what he termed "dangerous" German economic policy. In a speech in Merkel's own back yard in Berlin he said "by insisting on pro-cyclical policies, Germany is endangering the European Union."
"I realize that this is a grave accusation, but I am afraid it is justified," he added.
Market analysts have said that the discord between Washington and Europe meant that a meaningful coordination of exit strategies from the economic crisis was unlikely at the Toronto summit.
Author: Uwe Hessler/gb (dpa/AFP)
Editor: Andreas Illmer