G-20 finance ministers face off: stimulus vs. regulation

LONDON -- World Bank President Robert Zoellick warned on Friday that 2009 could be a "very dangerous year" and urged quick action to fix troubled economies ahead of a meeting of international finance officials expected to wrestle over whether to spend or regulate the way out of the global downturn.

"The danger now is doing nothing too little, too late," Zoellick told reporters before heading to the gathering of finance ministers and central bankers from the Group of 20 countries in Horsham, 30 miles south of London. "Incremental changes will prolong and increase risks."

Zoellick, a former top U.S. State Department official who has forecast the world economy will shrink by 1%-2% this year, said difficulties could extend "well into 2010."

He said fiscal stimulus without appropriate reform, such as cleaning up banks' the trouble assets weighing on bank balance sheets, would be "just a sugar high."

Widening cracks are developing ahead of the G-20 meeting Friday and Saturday, with Europeans focusing on greater oversight of financial markets and the United States backing bigger stimulus spending.

Adding fuel to the fire, China expressed concern on Friday about its massive holdings of U.S. Treasuries and other debt, appealing to Washington to safeguard their value. Premier Wen Jiabao noted that Beijing is the biggest foreign creditor to the United States and called on Washington to see that its response to the global slowdown does not damage the value of Chinese holdings. He said he was "a little bit worried."

Wen's comments foreshadowed possible appeals to President Barack Obama, who will meet with Chinese President Hu Jintao at the full summit of G-20 heads of state and government April 2 in London.

The divisions are raising doubts about how successful the talks will be in developing a common agenda for the full G-20.

As ministers prepare to thrash out a coordinated response to the crisis, U.S. Treasury Secretary Timothy Geithner has stressed the need for other major countries to commit to substantial and sustained efforts to bolster their economies in the face of a deepening recession.