Euro-Area Finance Chiefs Brace for Fresh Fight Over Budget

(Bloomberg) — Euro-area finance ministers will debate the final key elements of a small budget for their currency bloc, as the region seeks to cap two years of difficult negotiations over a tool that falls far short of the original sweeping vision of French President Emmanuel Macron.

The discussion on the budget, whose broad outlines were already agreed in June, will seek to bring to a conclusion difficult talks that pitted the fiscal restraint of the EU’s hawkish North against the South’s calls for spending to stimulate the economy. But entrenched differences over aspects of how this pot of money will be financed may mean an accord remains elusive.

The agreed budget would create a pot of about 20 billion euros ($ 22 billion) to facilitate investments and reforms and help give a boost to poorer nations, rather than help support economies in a downturn, as was initially intended. These funds, which would be part of the EU’s broader budget and distributed over seven years, will be used to help countries see through investments and reforms and help poorer nations catch up.

Proponents argue that the pared-down budget could still be a foot in the door that could evolve into something more powerful in times of crisis. Skeptics of the plan say it’s a toothless tool that could nonetheless help incentivize laggards to reform.

Stumbling Blocks

A key issue ministers will debate is whether the instrument can be financed entirely from the EU’s broader budget, paid in by all the bloc’s 28 governments, or whether it could be topped up by other funding sources in the future.

Countries led by France have been pushing for a deal that would allow funds to be added through further contributions. The Dutch and other fiscal hawks have pushed for it to be funded exclusively from the EU’s budget, a restriction that would limit its total size.

A compromise could include a so-called “enabling clause”, which would pave the way for countries that wish to top up the budget to do so in the future. But the Dutch have insisted that this would only be on a voluntary basis, a red flag for other members.

The other main issue to be discussed involves the details of the so-called co-financing rate, which determines how much money governments will receive from this budget for a project and how much they have to put up themselves. This contribution could vary depending on the member’s economic situation, being reduced during a downturn.

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G20 finance chiefs to warn of trade risks, differ on how ‘pressing’

© Reuters. OECD Secretary-General Angel Gurria (L) and Japan's Finance Minister Taro Aso pose holding the revised OECD Code of Liberalization of Capital Movements during the G20 finance ministers and central bank governors meeting in Fukuoka © Reuters. OECD Secretary-General Angel Gurria (L) and Japan’s Finance Minister Taro Aso pose holding the revised OECD Code of Liberalization of Capital Movements during the G20 finance ministers and central bank governors meeting in Fukuoka

By Francesco Canepa and David Lawder

FUKUOKA, Japan (Reuters) – Global trade tensions threaten an expected pick-up in economic growth this year and in 2020, a draft communique by the world’s financial leaders showed on Saturday, but the policymakers were divided on whether the need to resolve them was “pressing”.

Finance ministers and central bank governors of the world’s 20 biggest economies, the G20, are meeting in the southern Japanese city of Fukuoka to discuss the global economy amid rising trade tensions between China and the United States.

“Global growth appears to be stabilizing and is generally projected to pick up moderately later this year and into 2020,” the draft G20 communique, seen by Reuters, said.

“However … risks remain tilted to the downside. These include, in particular, intensified trade and geo-political tensions,” said the draft communique, which may yet change before it is released on Sunday.

The draft statement, to which all the G20 financial leaders have to agree, contains a sentence in square brackets — which means it was not yet agreed — that trade and investment were important engines of growth.

“We reaffirm our leaders’ conclusions on trade from the Buenos Aires Summit and recognize the pressing need to resolve trade tensions,” the sentence still under discussion said.

If the sentence is dropped from the final statement, it would mean rowing back on an agreement reached by G20 leaders last year in Argentina that while the existing international trade system — the World Trade Orgnisation — needs improvement, it helps world growth and should be fixed.

G20 leaders also agreed last December to review the WTO reform in Osaka later this month. But progress in overhauling the WTO, which still functions under rules created a quarter of a century ago, has been slow, partly because of U.S. actions to block appellate judge appointments.

A Japanese finance ministry official who attended Saturday’s G20 session told reporters that most of the group’s members voiced concern that escalating trade tensions posed a huge downside risk for the global economy.

“With so many countries expressing concern over the fallout (from the trade tensions), there seems to be some momentum to reflect that in the communique. But there’s no conclusion yet” on the language of trade, the official told reporters.

KURODA HAILS MEXICO DEAL

Relations between the United States and China have deteriorated since U.S. President Donald Trump in early May accused Beijing of reneging on commitments to change its ways of doing business with the rest of the world. Washington raised tariffs on Chinese goods and threatened new levies, while Beijing has retaliated.

U.S. Treasury Secretary Steven Mnuchin, who will hold talks with China’s Yi Gang on the sidelines of the G20 gathering, said the United States wants free, fair and balanced trade with China, in part to close a gaping U.S. trade deficit with China.

But the United States is prepared to levy tariffs on virtually all remaining Chinese imports if the “right deal” cannot be reached to satisfy U.S. demands for better Chinese protections of intellectual property and curbs to technology transfers and state subsidies, Mnuchin said.

“If we can’t have that, the end result will be that my expectation is that many companies will move their production out of China to other locations,” due to tariffs, Mnuchin said.

He said his scheduled meeting with People’s Bank of China Governor Yi Gang will not be a “negotiating meeting” on trade issues, reinforcing the view there will be little breakthrough in the row between the world’s two largest economies.

He added that any major progress will rest with Trump’s expected meeting with Chinese President Xi Jinping at a G20 leaders’ summit late this month.

In a rare positive development, the U.S. administration said it will put off imposing tariffs against Mexico after the two countries reached a deal to contain the migration of immigrants crossing the southern U.S. border.

“It’s a very good outcome not just for the United States and Mexico, but for the global economy,” Bank of Japan Governor Haruhiko Kuroda told reporters.

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