BERLIN/PITTSBURGH (Reuters) – The Group of 20 summit will be key for financial reforms, German Chancellor Angela Merkel said on Thursday, warning that efforts to make the world less prone to financial disasters may lose momentum.
Merkel, speaking before departing for the summit in the United States, said that G20 economies looked to be on the right track for now.
But she stressed that the G20 -- which groups big Western economies with emerging powers such as China -- should not shy away from measures which may prove unpopular with the banking industry, where the economic crisis began.
Leaders of the world's biggest economies meet in Pittsburgh later in the day to discuss ways of nurturing the fragile recovery from the worst global recession since 1930s, and how to help cushion the world economy from future crises.
Europe is pressing for reforms of financial regulation, while President Barack Obama's agenda is topped by a plea for coordinated policies that will even out massive imbalances between export powerhouses such as China and the deeply indebted United States.
The sheer volume of problems the two-day summit is set to address -- from the lopsided global growth model to climate change, tougher financial regulation and caps on bankers' pay -- means expectations for any near-term action are low.
But Merkel, who faces parliamentary elections this weekend, urged the leaders to agree regulations for markets and not let themselves be sidetracked by other economic themes.
"We have to make sure we learn the lessons of the crisis and make sure it is not repeated. Pittsburgh will be decisive in determining whether the subject of financial market regulation continues to be a central issue. For us, it is the most important subject at the meeting," Merkel told reporters.
"My view is that we are on a good path but the impetus could fade at any time and we will push hard to try to make sure this doesn't happen," she said. "Politicians must have the courage to do things which are not immediately applauded by banks worldwide."
German Finance Minister Peer Steinbrueck has accused bankers in London and New York of doing their best to block the introduction of stricter financial market regulations.
Europe is seeking to curb the excessive risk-taking that provoked turmoil on financial markets and shoved the world economy into recession. Several European leaders are also pushing for crackdowns on bankers' lavish pay packages.
The meeting in Pittsburgh, which has known economic hardship as its once mighty steel industry lost out to global competitors, is the third G20 gathering since the collapse of investment bank Lehman Brothers a year ago.
Now that the recession in many countries appears to be ending, the challenge is to sustain the sense of urgency felt in April when the G20 agreed to work together to rescue the world economy and pledged hundreds of billions of dollars to finance crisis-fighting by the IMF.
In the latest sign of incipient recovery, the U.S. Federal Reserve said on Wednesday growth has returned to the world's biggest economy.
The euro zone also appears poised to emerge from recession, although most economists expect only a gradual recovery and a key indicator of German business confidence fell short of expectations on Thursday.
The summit's final statement will say short-term and long-term risks persist and will emphasize that more action is still needed to stabilize the economy, Japan's Kyodo News reported on Thursday, citing officials.
International Monetary Fund head Dominique Strauss-Kahn struck a similar note, saying G20 leaders should keep economic stimulus plans in place as long as millions of people who lost their jobs during the crisis remain out of work.
"Once the fire is out, there's water everywhere, it has to be mopped up," he told Europe 1 radio. "In Pittsburgh, we have to say, there are still fires to be put out, we'll see later how to do the mopping up."
Obama will seek support at Pittsburgh for his call for a concerted effort to put the global economy on a sounder footing over the long run.
DON'T COUNT ON U.S. CONSUMER
Washington wants G20 nations to commit to a joint effort to reduce the world's reliance on U.S. shoppers by boosting consumption in exporting countries, such as China, while encouraging debt-laden nations such as the United States to save more. But there is no plan on how that would be achieved.
China's private consumption accounts for little more than a third of its economy, while it exceeds 70 percent in the United States and Britain. By contrast, Chinese households saved about 40 percent of their disposable incomes last year, while the U.S. savings rate was just over 3 percent.
Several nations including China, and Germany, the world's top exporter last year, have distanced themselves from the U.S. suggestion to make the IMF responsible for regular monitoring and policy recommendations to G20 members.
The summit starts with various bilateral talks on Thursday. Obama hosts a reception and working dinner in the evening.
(Reporting by Reuters G20 team; Writing by Tomasz Janowski/ David Stamp; Editing by Ruth Pitchford)
