Cameron to defend UK fiscal squeeze at summit

City A.M. Reporter
David Cameron has defended Britain's decision to implement the biggest fiscal squeeze in a generation as G20 leaders prepared to meet in Canada to discuss the global economy.

Last year's G20 unity on the need for coordinated action to support the world economy has started to falter as the recovery has got under way.

Ahead of the weekend meeting, U.S. President Barack Obama warned his fellow leaders not to repeat the mistakes of the 1930s and withdraw stimulus too soon.

Britain's new coalition government, however, produced the harshest budget in decades earlier this week, featuring massive spending cuts and tax rises. Germany has also sketched out an 80 billion euro (71.8 billion pounds) austerity programme.

"At this weekend's summit, no one can doubt the biggest promise we have to deliver: fixing the global economy. The question is how we will deliver," Cameron wrote in an opinion piece for Canada's the Globe and Mail newspaper to be published on Friday.

"Of course there must be the flexibility for countries to act, taking account of their own national circumstances.

"But I believe we must each start by setting out plans for getting our national finances under control."

In a similar vein, European Central Bank President Jean-Claude Trichet said on Thursday it was wrong to claim that budget austerity would cause stagnation while German Chancellor Angela Merkel said her country would stick to plans to save 80 billion euros in the next four years, its biggest programme of fiscal cutbacks since World War Two.

Cameron cited Canada's own programme for spending cuts in the 1990s to get its economy back on track.

"In Britain this week we showed how we will start to live within our means again," he wrote. "Like you, we have had to make some unpopular but unavoidable decisions on tax and spending. But like you too, we know it is essential to restore confidence and growth to our economy."

Cameron said G20 leaders would also have to make good on their pledges to fix the world's financial system.

Britain, together with Germany and France, said they would slap a new levy on banks next year to help recoup the cost of a massive taxpayer bailout.

But so far there has been no consensus within the G20 with a number of countries like G20 host Canada having grave reservations.

Cameron has said it would be better if such a tax were to be implemented internationally, but he appeared to accept this may not happen.

"I believe that it is fair they (banks) should repay that debt through a new levy. There will be one in force in Britain in January and other countries, including France and Germany, are introducing similar ones, although this approach won't necessarily be for everyone," he said.

Cameron said the G20 also needed to move faster on strengthening capital and liquidity in banks so they would not have to rely on taxpayer support in the event of another crisis.