Leading world economies pressed the US yesterday to act decisively to avert a rush of spending cuts and tax hikes.
They warned that the so-called fiscal cliff is the biggest short-term threat to global growth.
Unless a fractious Congress can move swiftly to reach a deal after the US elections tomorrow, about $600 billion in government spending cuts and higher taxes are set to kick in from January.
This could push the US economy back into recession.
"If the US fails to resolve the fiscal cliff it would hit the US economy hard as well as the world and the Japanese economy, so each G20 country will urge the US to firmly deal with it," Bank of Japan Governor Masaaki Shirakawa said before a meeting of Group of 20 finance ministers and central bankers.
European delegates at the G20 meeting in Mexico City were particularly keen for details on the US plan, according to those present at preparatory talks.
Canadian Finance Minister Jim Flaherty said that in terms of short-term risks to the global economic outlook, the US fiscal cliff outweighed Europe's debt crisis. "They may not deal with it until the 11th hour and the 55th minute but I expect that they'll do it just as they dealt with their banks in 2008," he told reporters.
South Korean Finance Minister Bahk Jae-wan forecast the global economy could suffer during the first quarter of 2013 because of uncertainty about the fiscal cliff.
Nonetheless, he too was counting on Congress being able to find some kind of fix. "I think compared to the euro zone crisis the fiscal cliff issue is much easier to solve,'' he stated.
The euro crisis, which erupted more than two years ago, has eased after the European Central Bank said in September it was ready to buy more government debt. But investors are edgy about when or whether Spain will request an international bailout and how Greece's deep financial problems can be fixed.
A draft communique being readied for the G20 policymakers said there were elevated risks facing the global economy, including Europe's crisis and potential problems in Japan.
"Global growth remains modest and risks remain elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States and Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets," the draft said, according to a G20 source.
The final communique will be published once talks end later today.
G20 officials said the wording on Europe referred to differences among European governments over how to build a banking union, considered an important way to bolster the bloc's shaky financial system, during 2013. France, Spain and Italy have been frustrated with German demands for the new scheme.
Few expect major agreements in Mexico with heavyweights such as US Treasury Secretary Timothy Geithner - expected to stand down after the US elections - European Central Bank chief Mario Draghi and top Chinese officials skipping the meeting.
