U.S. Treasury chief Geithner urges G-20 leaders to continue government spending

They smiled for photos and announced agreement on everything from nuclear containment to development efforts in Africa on Saturday, but world leaders gathered in Toronto have a tougher challenge as they get down to brass tacks on the best way to keep the global economic recovery from stalling.

Going into Sunday’s meetings with the Group of 20 industrialized and emerging nations, the Obama administration was pressing leaders to stay the course they set more than a year ago to promote growth through government investment in the economy.

Spooked by economic meltdowns in Greece and elsewhere on their continent, European leaders came to those talks concerned about racking up a damaging level of debt. Their proposal of a punitive global tax on banks to fund future bailouts was meeting opposition from other nations but remained under consideration late Saturday.

But U.S. and Canadian leaders predicted that a common purpose would emerge before the G-20 summit ends Sunday, one representing a balance between economic stimulus and plans for deficit reduction.

“We have to find the right balance, and that balance is going to differ across countries,” Treasury Secretary Timothy F. Geithner said. “But I think you’re going to see a strong commitment again by these major economies to do what is necessary to make sure that we are supporting recovery and getting that balance right.”

A source familiar with the talks said negotiators were discussing a standard that President Obama proposed in a letter to G-20 leaders this month, in which he pledged to reduce the federal fiscal deficit to 3% of gross domestic product by the fiscal year 2015.

The conversations unfolded as the heads of the Group of 8 leading industrialized nations concluded their summit at a resort town north of here and made their way to Toronto for the larger G-20 meeting. The G-8 leaders issued a statement that condemned North Korea in the March sinking of a South Korean ship, which is widely believed to have been hit by a torpedo, and urged North Korea and Iran to stop development of nuclear weapons. North Korea has produced atomic bombs, but Iran denies that its nuclear program aims to make weapons.

After meeting later with South Korean President Lee Myung-bak, Obama said he supports the push for a United Nations resolution condemning the sinking, saying, “There have to be consequences for such irresponsible behavior on the international stage.”

Obama also promised Lee that he would revive stalled trade talks between their nations, with the aim of completing a new agreement in time for his November visit to South Korea for the next G-20 meeting.

The world leaders called their support for development around the world and particularly in Africa a “cornerstone of G-8’s approach.” They pledged to help the most vulnerable states “build the foundations for peace, security and sustainable development.”

Later in the day, Obama and Chinese President Hu Jintao agreed to schedule a state visit to the White House. Obama hosted British Prime Minister David Cameron on Marine One, the presidential helicopter, and settled a soccer bet with beer — England and the U.S. tied in their World Cup match this month, so the two leaders traded bottles.

Work among the G-20 leaders began in earnest late Saturday with a dinner in the evening and continues Sunday with group sessions and a series of side meetings. Obama is scheduled to confer with several Asian leaders, including Indonesia’s president, whom he was to have visited in Jakarta this month. Obama canceled the trip because of the ongoing oil spill threatening the Gulf Coast.

But the toughest conversations will center on the economy, even though the parties are expected to paper over their philosophical differences with a statement of agreement.

Making a late appearance after battling stormy weather, Geithner bore the U.S. message urging shared investment to stimulate the economy.

White House officials are worried that withdrawing spending too quickly could result in a repeat of the errors that drew out the Depression.

“The scars of this crisis are still with us,” Geithner told reporters after arriving in Toronto. “So this summit must be fundamentally about growth.”

He said the global recovery was still fragile and could suffer under badly timed austerity measures.

In the past, he said, some governments have waited too long to escalate spending in response to recession, “hoping it won’t be as bad as people fear.”

In other cases, they have “stepped back too quickly, on the hope that it’s over,” Geithner said.

German leaders have reiterated their concerns about the European debt crisis and how that might play out across their nation’s economy if other governments accumulate too much debt.

Geithner said he thinks the leaders are not far apart on the question of austerity.

“You’ve seen this in the commitment they’re going to make here in Toronto,” he said, “a basic recognition of the importance of growth.”

cparsons@latimes.com