World leaders strive for economic consensus

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World leaders will continue to work for agreement on the global economy as they meet for the second day of the G20 summit in London.

But hopes of achieving a worldwide financial stimulus hit a stumbling block yesterday as French president Nicolas Sarkozy and German chancellor Angela Merkel admitted that they were reluctant to sign a communiqué without greater regulation of the economy.

At a joint news conference, the European leaders said that they spoke with "one and the same voice" on saving the global markets.

Sarkozy and Merkel warned that improving regulation of financial institutions was a "red line" issue for their nations.

But chief Treasury secretary Yvette Cooper today played down rumours of a rift between the G20 leaders.

She told the BBC: "There's a surprising amount of consensus, both about the need for the stronger regulation but also about action to boost our economies.

"People call it a fiscal stimulus, it's basically governments taking action to support the economy, put more money into the economy."

This morning, Vince Cable, Treasury spokesman for the Liberal Democrats, warned that "too much hope" was being vested in the G20 meetings.

And he argued that agreement on a global financial stimulus was not going to happen, citing "German reluctance" as a reason.

He told the BBC: "In an ideal world, [the G20] would address this whole issue of the fact that the world economy is spinning into a downward vortex of collapsing output and unemployment.

"It would need substantial agreements to prevent the slides of protectionism and nationalism, and not just warm words.

"It would need a substantially beefed up International Monetary Fund with funding particularly for developing countries, many of which are hurt much more than us because of the collapse of commodity prices."

Cable added: "And it would need a strategy for approaching the issue of bank regulation. That is a very important issue although not an immediate one."

But the Lib Dem Treasury spokesman stated that Britain and America had "fallen down" on the economy by only semi-nationalising certain banks.

"They haven't built on that and actually got them lending," he stated.

"The biggest issue of all, although there isn't going to be an agreement, is how you keep demand going. The problem here is partly a German reluctance to be dragged into another so-called fiscal stimulus."

Cable continued: "I think that too much attention, too much hope has been vested in this particular meeting.

"The important thing is that the meeting doesn't collapse in acrimony and they just go away in the way they did in the 1930s. It was eventually war that provided demand which is not the best way of dealing with these things."