G20 leaders facing worries about rising deficits

World leaders trickled into Canada’s largest city on Thursday for global economic talks, but their resolve seemed less focused than at earlier meetings held in the fearful atmosphere of the worst downturn since the 1930s. New leaders in Australia, Japan and Britain could alter the dynamics.

With recoveries in their countries proceeding at starkly different paces, leaders of the 20 largest industrial and developing nations found themselves at odds over how to strike the right balance between continued government stimulus spending and confronting ballooning budget deficits. Divisions also persisted on proposals for a global bank tax and over how much multinational banks should be required to keep on reserve as a cushion against loan losses.

“The most pressing issue is sustainable economic growth,” said Canada’s finance minister, Jim Flaherty. But he told a news conference before a speech to the Toronto Board of Trade that this means different things in different parts of the world.

“There are clearly some countries, particularly some European countries, that need to fiscally consolidate on an urgent basis,” he said.

He noted that Canada’s economy is fundamentally strong and that its banks weathered the financial crisis without failures or government bailouts. “We are the envy of the world,” he said in voicing opposition to a global bank tax.

Security was tight as foreign leaders arrived during the day and their motorcades tied traffic into knots near the airport and on roads into town. Barricades turned Toronto’s downtown core into a virtual fortress.

Police said they took a man into custody Thursday after searching a car and finding containers of gasoline and implements that could be used as weapons, including a cross bow, a chain saw a baseball bat and sledge hammers. A large makeshift container was strapped to the roof. The car was stopped near a hotel where the French delegation is staying for the summit. Workers at the hotel had walked off the job Thursday as part of a labor dispute.

Const. Hugh Smith said the man was being questioned on why he had so many of the items and why he was in the area. He said charges are pending. The vehicle was seized. Const. Tony Vella said there’s no reason to believe the incident was summit-related.

Although heavier protests were expected later in the week, demonstrations on Thursday were tame and nonconfrontational. Police with bicycles moved in tandem with several hundred First Nations protesters – descendants of Canada’s aboriginal residents. They marched through downtown streets, waving upside-down Canadian flags, pounding on drums and shouting, “No G-20 on stolen native land.”

Canadian police patrolled the Lake Ontario waterfront from various boats and jet skis.

One of the first to arrive in Canada was Chinese President Hu Jintao, who met separately on Thursday in Ottawa with Canadian Prime Minister Stephen Harper, the summit host.

Harper and Hu signed an agreement that would allow for more Chinese to visit Canada. Hu also agreed to clear the way for Canadian beef to be exported to China. “In the views ranging from developing our own economies, to sustaining the recovery momentum in the global economy … there is a need and also a possibility for Canada and China to further scale up their co-operation,” said Hu.

Britain, Japan and, unexpectedly, Australia were sending new leaders to the G-20 summit. As leaders began arriving, Australia’s ruling Labor Party abruptly ousted Prime Minister Kevin Rudd.

Julia Gillard replaced him, becoming Australia’s first female leader. Wayne Swan, her new deputy and the country’s finance minister, was to represent Australia at the Canadian meetings.

It will be the first appearance at international forums for British Prime Minister David Cameron and Japanese Prime Minister Naoto Kan. And both were bearing messages that U.S. President Barack Obama might rather not hear.

Cameron comes after his government unveiled an emergency budget that contained higher taxes and the toughest cuts in public spending in decades. And Kan said this week that deficit reduction would be his top agenda item at the Canadian meetings and that Japan would soon start debating a possible sales tax increase to rein in the nation’s bulging deficits.

Both are trying to avoid Greece-style government debt crises.

By contrast, the U.S. has generally said that governments worldwide should not pull back stimulus programs too quickly and risk choking growth. Obama in a letter to other leaders cautioned against slamming on the brakes too hard, but encouraged trade “surplus” countries – he didn’t mention them but he clearly meant China Germany and Japan – to do more to promote domestic spending.

Obama was to arrive Friday morning. Cameron arrived Thursday evening after a stop in Halifax, Nova Scotia.

Speaking to reporters aboard his plane, Cameron said: “This weekend isn’t about a row over fiscal policy. We all agree about the need for fiscal consolidation. For me, this G-20 is about putting the world economy on an irreversible path to recovery.”

Cameron said his country was paying a “heavy price” for its involvement in Afghanistan and sent condolences to the families of four soldiers killed in a vehicle accident there on Wednesday.

The summit offers Cameron his first chance to meet as prime minister with Obama since the BP oil spill, which has frayed relations between the two close allies.

Despite U.S. appeals to refrain from removing stimulus measures too quickly, country after country is rushing to slash spending and raise taxes, including austerity moves in Germany and France.

German Chancellor Angela Merkel on Thursday defended her government’s moves, saying in an interview with German public broadcaster ARD that “Germany has done much more to revive the global economy than most other nations.” Germany is Europe’s strongest.

The first of this week’s two economic sessions is a meeting of the Group of Eight, the world’s older leading industrial democracies – the U.S., Canada, Britain, Germany, France, Italy, Japan – plus Russia on Friday and parts of Saturday at a lakeside resort about 140 miles north of Toronto. The larger group of 20 nations, including such major developing powers as China, Brazil and India, will meet at the Metro Toronto Convention Centre on Saturday and Sunday.

The leaders maintained remarkable unity at three previous summits, but that unity is now fragmented.

However, a move by China to let its currency appreciate against the dollar appeared to lessen trade frictions. Hu’s government began Monday to allow the Chinese yuan to rise after having fixed the yuan-dollar exchange rate for the past two years.

A more flexible yuan was seen as a critical development by the Obama administration to fulfill one of the G-20 pledges to address dangerous imbalances, such as China’s massive trade surpluses and the United States’ huge trade and budget deficits. A stronger yuan, which is also called the renminbi, should provide relief for American, European and Japanese manufacturers which have struggled to compete with low-price exports from China.

Critics in Congress are still threatening China with sanctions unless the yuan moves significantly.

The G-20 final statement expected to be issued on Sunday notes that “while growth is returning in many countries, the recovery is uneven and fragile, and unemployment remains at unacceptable levels,” according to an early draft that the environmental group Greenpeace said it obtained.

“We recognize the important progress made since our last meeting in Pittsburgh, but we also agree that much work remains,” said the draft, posted on Greenpeace’s website.