Japan and China today backed government spending as the top priority in attempts to counter the global economic crisis, ahead of a G20 meeting where the United States and Europe are split over the need for more aggressive stimulus.
Finance ministers from the group of leading powers will also discuss European demands for tougher market regulation at talks this evening, preceded by a meeting of the G20's big emerging market countries, China, India, Brazil and Russia.
The search for a collective solution to the worst economic and financial crisis since the 1930s has exposed rifts in recent days, with Washington demanding that more money be thrown at the problem while Germany and France say the focus should be executing existing promises and taming market excess.
Japanese finance minister Kaoru Yosano stood closer to the US side, urging world leaders to focus on giving an immediate boost to the global economy and pledging to unveil new economic stimulus measures by April. China said it was ready to do more if needed to spur its growth.
"The immediate issues are to stabilise the financial system (and) to get out of the present deflation threat facing the world economy," Mr Yosano was quoted as saying in today's edition of the Financial Times.
"These two are the most important things."
The group's finance ministers and central bankers -- meeting in Horsham, south of London -- will discuss a roadmap for tackling the crisis, aiming to pave the way for a broader summit of world leaders on April 2nd , also being hosted by Britain.
The world's leading developed and emerging nations are under pressure to deliver on pledges made in November, when they outlined an action plan to combat the crisis and guard against future meltdowns, much of it involving commitments to regulate better.
But the run-up to this weekend's gathering has been dominated by disagreements over what the summit's priorities should be, and the degree to which countries should ramp up stimulus spending.
Washington is urging the biggest industrialised countries to spend 2 per cent of their gross domestic product to boost demand and pull the global economy out of its tailspin, but France and Germany have rejected US and British calls for fresh spending.
"The international community must unite to tackle the downturn and set the path toward a sustainable future," British finance minister Alistair Darling said todayy in a column in the Wall Street Journal.
"We must do three things: boost demand, reform the global system of financial regulation, and increase the resources of the International Monetary Fund (IMF)."
The G20 represents more than 80 percent of the global economy, comprising the Group of Seven industrial nations -- all of which are in or near recession -- and key emerging markets such as Russia, China, India and Brazil.
Early in the crisis, major central banks made coordinated rate cuts to spur demand but policy actions have been largely ad hoc since. Many governments announced multiple stimulus packages and massive bank rescue plans only to see their economies sink deeper into recession and their finances fall deeper in debt.
The world economy shrank for the first time since 1945 in the last quarter of 2008, throwing millions of people out of work, and the IMF forecasts global growth will be negative in 2009, the first annual global contraction for more than 60 years.
French president Nicolas Sarkozy rebuffed US calls to spend more at a news conference with German chancellor Angela Merkel in Berlin yesterday.
"We consider that in Europe we have already invested a lot for the recovery, and that the problem is not about spending more, but putting in place a system of regulation so that the economic and financial catastrophe that the world is seeing does not reproduce itself," Mr Sarkozy said.
Russia will also oppose British proposals for G20 members to set a mandatory minimum fiscal stimulus level at 2 per cent of GDP and cut interest rates, a Russian delegation source said.
China's premier Wen Jiabao sought to reassure the world today that China would deliver on a promise of 8 percent growth in 2009 despite a collapse in Western demand for Asian goods, and could deploy extra stimulus spending if needed to get there.
Beijing has already unveiled a 4 trillion yuan ($585 billion) plan to expand and speed up government spending.
"We have prepared enough 'ammunition' and we can launch new economic stimulus policies at any time," Mr Wen told his annual news conference after a yearly meeting of China's parliament.
Progress is being made in some quarters, with G20 financial leaders expected to back a call to give more money to the IMF to help fight the crisis.
Glimmers of hope may also be emerging for badly battered financial markets amid signs that large US banks may survive without full government takeovers.
But a solution to the core problem of what to do with a mountain of troubled assets held by banks is proving elusive, and global economic recovery hinges on nursing the ailing financial system back to life.
Reuters