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Rollback recovery

June 19, 2010

German Chancellor Angela Merkel on Saturday contradicted US President Barack Obama, saying that Europe will push for a swift exit from fiscal stimulus programs and focus instead on budget cuts at the G20 meeting.

Angela Merkel and Barack Obama
Obama and Merkel don't see eye to eye going into the G20 summitImage: AP

German Chancellor Angela Merkel on Saturday signaled that she expected next week's G20 summit in Canada to focus on budget consolidation rather than continue with stimulus packages to strengthen the global economic recovery as favored by US President Barack Obama.

Leaders of the 20 biggest developed and developing economies meet on June 26-27 in Toronto, Canada.

In her weekly podcast, Merkel said from a European perspective, keeping an eye on avoiding future economic problems takes priority.

"For the European parties involved, and especially Germany, it is urgently necessary to prevent crises like this from ever happening again in the future," she said.

Economic growth must be sustainable, environmentally friendly and oriented towards the future, Merkel said.

EU nations on austerity drive

Euro notes with a hole burned in the middle
Merkel believes European nations don't have money to burnImage: DW

Over the past several months, the European Union has agreed to put together a rescue package worth billions of euros to ease Greece's financial woes, and agreed to another safety-net fund of several hundred billion euros to protect other nations from spiralling out of control like Greece. As Europe's largest economy, Germany has picked up a large part of the tab.

European governments have also been launching austerity measures to head off a spread of the debt crisis begun in Greece.

Germany's cabinet this month backed budget cuts worth about $105 billion - the country's biggest postwar austerity program -through 2014, while French President Nicolas Sarkozy this week raised the retirement age and increased taxes.

At odds with Obama

Merkel's stance heading into the G20 summit is contrary to that of President Obama. On Friday, Obama urged caution when it came to scaling back government spending.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Obama said in a letter to G20 leaders on June 16.

"We worked exceptionally hard to restore growth; we cannot falter or lose strength now. This means that we should reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong," he said.

However, Germany - and other members of the European Union - are having to come to each other's aid in a joint effort to protect the euro, shared by 16 of the EU's members. Merkel has said that the billions the German government had already agreed to were in the greater interest of the euro currency, not individual member states.

Merkel also said that the European Union would push again for a global financial transaction tax at the G20 meeting.

Germany and France support the introduction of the tax in Europe but G20 hosts Canada as well as Britain are opposed to it.

"There will certainly be controversial discussions about this but I am happy the European council reached a common stance on this for the G20 meeting," Merkel said.

Author: Matt Zuvela (Reuters, AFP)
Editor: Sonia Phalnikar