Policy coordination to be key challenge at G20 summit

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At the Group of 20 (G20) summit in Toronto, achievements of an out-of-recession and slow growing world economy will be cheered. But more important to observe is that how governments deal with their differences or even conflicts in major economic or financial policies amid an uneven recovery.

Countries of G20, with their varied pace of recovery from the global financial crisis, will review conditions of the world economy and coordinate their macroeconomic policies at a summit this weekend in Toronto to secure the global recovery.

Issues like anti-protectionism, free trade and investment, and development in Africa etc will be discussed. But divergence among major economies on key issues of exit strategy or financial regulation reform will be the center of the summit.

Balance between exit and recovery

The top priority on the G20 Toronto Summit agenda may be that how to balance financial consolidation and protecting economic recovery in the post-crisis era. But it is the issue which Europe and United States agrees on least.

Troubled by sovereign debt crisis, many countries in the European Union have launched financial austerity plans in a bid to cut public spending and reduce fiscal deficit. EU leaders have made it clear that they believe delaying exit strategy will endanger the financial stability.

In a joint letter to G20 partners, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso said the EU will stick to its financial consolidation targets in order to achieve a sustainable financial system. And if necessary, all EU members will take further steps to speed up consolidating their finances.

EU's move has triggered worries from the United States. The world's number one economy is concerned that EU members' conservative financial policies will hurt the world economic recovery. "Countries must put in place credible plans to stabilize debt-to-GDP levels and set a pace of consolidation that reinforces the momentum of growth," Treasury Secretary Timothy Geithner and Lawrence Summers, director of the National Economic Council, wrote in an opinion piece posted on Wednesday's The Wall Street Journal.

"We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth," they wrote. "Without growth now, deficits will rise further and undermine future growth."

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