'Time to reduce the deficits': Merkel

25th June 2010, Comments 0 comments

German Chancellor Angela Merkel insisted Friday that G8 members immediately should start to cut their deficits, despite fears in some capitals that this could kill the global recovery.

"It is time to reduce the deficits. Europe has experienced what it means to have too big deficits," she told journalists on arrival at the Group of Eight summit in Canada, which began Friday.

Europe has come under increasing pressure from the United States to focus on measures to stimulate and protect economic growth, rather than to rein in spending programs put in place to combat the worst recession in decades.

But Merkel, head of Europe's largest economy, has led moves to slash spending in the wake of the eurozone debt crisis that forced Berlin to stump up the lion's share of cash for an unprecedented rescue mechanism.

Critics have said that the more than 80 billion euros (98 billion dollars) in savings announced by Merkel over the next four years, which mirror similar efforts in other European countries like Britain, will hit growth.

"We need growth that doesn't rely on debt but is based on real grounds," Merkel insisted here Friday.

"The world needs a new architecture for the financial markets and me and the EU will advertise for that very intensively," she added.

But she said there was still disagreement over a proposals to slap a new levy on banks and a financial transactions tax aimed at making financial institutions pay for any future crisis.

"We will have to keep working on this, we will have a very open debate about it," Merkel pledged.

"We have to finalize the new architecture for the financial markets, that does include to have the financial sector pay for the costs of crisis."

The United States and Germany agree on the need for the new taxes on banks, but have hit opposition from Canada, Australia and emerging economies such as China, Brazil, and India which were largely spared by the economic crisis.

Opponents argue such taxes will only penalize their financial insitutions which played no part in fuelling the economic meltdown, triggered largely by the collapse of the US housing bubble.

© 2010 AFP

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