Top finance officials debated the next steps for the recovering global economy on Friday, with European countries pushing for a crackdown on bankers' bonuses while the U.S. stressed the need to boost bank reserves to prevent a repeat of the financial crisis.
The Group of 20 countries were also discussing so-called exit strategies from the recent massive economic stimulus, although all agreed that withdrawing the massive amounts of money injected into the ailing world economy any time soon could risk a double-dip recession.
Developing countries, meanwhile, used the gathering to press for reform of global financial governance, proposing shifts in voting power at the International Monetary Fund and the World Bank in favor of developing countries.
Finance ministers and central bank officials from rich and developing countries representing 80% of world economic output are convening in London through Saturday amid mounting signs of at least a modest economic upturn, with Japan, Germany, France and Australia all recording growth in the second quarter. Britain is widely expected to do so in the third quarter.
But the mood remained subdued, with a uniform warning that it is too early to declare the end of the crisis.
"The global economy still faces great uncertainty, and significant risks remain to economic and financial stability," Brazil, Russia, India and China — the so-called BRIC quartet — said after they held a mini-summit ahead of the main G-20 talks.
The timing of a so-called exit strategy is not yet agreed among finance officials.
Germany has pushed for G-20 nations to start talking about when and how they will withdraw stimulus measures, but other EU nations were cool to that, saying they wanted talk and not action right now.
French Finance MinisterChristine Lagarde said she is happy to discuss coordinating an exit strategy but stressed that the timing was something that "God only knows."
European countries have stressed the role that excessive payouts to banking executives played in the current crisis by fueling risk-taking, and called for bonuses to be severely curbed.
G-20 leaders promised at their London meeting in April to pass "tough new principles on pay and compensation," but little progress has yet been made.
"Individual compensation is generally key to determining the behavior and the risk adopted by a trading room," Lagarde told reporters. Under government pressure, France's largest bank BNP Paribas has halved bonus payments this year and, along with others, agreed to link bonuses to performance.
But the European push on bonuses has received a lukewarm response elsewhere within the G-20.
U.S. Treasury Secretary Timothy Geithner has not raised the bonus issue, preferring instead to focus on U.S. attempts to start talks on a new international accord to increase banks' capital reserves.
Geithner says the accord would put in place "a more conservative framework of constraints on leverage in the financial sector across the major globally active financial institutions."
The Obama administration's proposal would establish stronger international standards for the reserves banks are required to hold to cover potential loan losses. The U.S. wants to reach agreement on an accord by the end of 2010, with countries agreeing to implement the plan by the end of 2012.