European policymakers dug in to defend budget austerity plans on Thursday ahead of a G20 summit set to pit calls for fiscal restraint against warnings that heavy cost-cutting threatens recovery. European Central Bank President Jean-Claude Trichet said it was wrong to claim that budget austerity would cause stagnation while German Chancellor Angela Merkel said her country would stick to plans to save 80 billion euros in the next four years, its biggest program of fiscal cutbacks since World War Two. “We'll enact the measures that we've agreed upon,” Merkel said in an interview with German ARD television broadcast on Thursday morning. “I believe we should not let up.” After winning plaudits for guiding the world economy through the financial crisis, splits have emerged among Group of 20 powers over which policy priority ought to take precedence now - supporting still-shaky growth or shrinking budget deficits. G20 leaders meet in Toronto this weekend and the draft version of the summit communique, obtained by Reuters and dated June 11, said the recovery was “uneven and fragile” but at the same time warned against complacency. “Fiscal challenges in many states are creating market volatility, and could seriously threaten the recovery and weaken prospects for long-term growth,” it said. The United States has warned against withdrawing support too soon, mindful of when the government slammed the brakes on spending in the 1930s, prolonging the Great Depression. A market backlash against countries seen to be dragging their feet on cutting debt and deficits has sparked budget cutbacks all over Europe.
