European policymakers defended budget austerity plans on Thursday ahead of a G20 summit set to pit calls for fiscal restraint against warnings that heavy cost-cutting threatens recovery.
European Central Bank President Jean-Claude Trichet said it was wrong to claim that budget austerity would cause stagnation, and 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.
“We’ll enact the measures that we’ve agreed upon,” Merkel said. “I believe we should not let up.”
After winning plaudits for guiding the world economy through the financial crisis, splits have emerged among Group of 20 powers over which policy priority ought to take precedence now — supporting still-shaky growth or shrinking budget deficits.
The United States has warned against withdrawing support too soon, mindful of when the government slammed the brakes on spending in the 1930s, prolonging the Great Depression.
But Europe is set on a different path. A market backlash against countries seen to be dragging their feet on cutting debt and deficits has sparked budget cutbacks all over Europe as governments try to rein in spending.
French unions staged a nationwide strike on Thursday over plans to reform the pension system following similar protests in Spain and Greece, where ministers were due to meet on Thursday to discuss their own pension reforms.