Group of 20 (G20) leaders meeting in Seoul on Thursday sought to bridge their differences over how best to revive the global economy and gave up on the idea of imposing limits on excessive current account imbalances.
Amid a serving of king crab rillettes and chocolate brownies, heads of state and government representing 85 per cent of the world economy settled down for a working dinner to discuss ways to stop a currency war sparked by a mutual desire to boost exports and reduce imports.
They were then briefed on the fragile state of the global recovery by the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, before settling down for a fresh round of talks in the South Korean capital.
The meeting's host, South Korean President Lee Myung Bak, urged fellow leaders to work towards a “meaningful outcome” for the G20, which has emerged as the main forum for discussing the global economy since the financial meltdown of 2008.
But the summit was accompanied by palpable tension, particularly between the United States and big exporting nations such as China and Germany.
While Chinese President Hu Jintao rejected accusations that China was manipulating the renminbi to make his country's products cheaper, German Chancellor Angela Merkel rejected a US idea - later dropped - to set numerical targets on a country's trade deficit or surplus.
“Fixing limits for current account surpluses or deficits is neither economically justified nor politically appropriate,” Merkel said. “This would also be in contrast to the principles of free trade in the world.”
Merkel later confirmed that G20 leaders had “given up on the idea” of introducing any formal caps.
Instead, negotiators said they expected the G20 to reach some form of agreement on an alternative “early warning mechanism.”
European Union officials said the rest of the world could draw inspiration from their plans to use current account imbalances alongside other indicators of economic instability, such as wage evolution and real estate bubbles.
But the details of such a G20 mechanism were expected to require months of further discussions.
The US, which suffers from a huge trade deficit, had also come under fire over the recent intervention by the Federal Reserve, which effectively devalued the dollar by printing money to buy bonds in its bid to revive the country's economy amid high levels of unemployment.
US President Barack Obama, who held bilateral meetings with both Merkel and Hu ahead of the summit, defended the Fed's actions, stressing that “the most important thing that the United States can do for the world economy is to grow.
“Countries like Germany that export heavily benefit from our open markets and us buying their goods,” Obama said.
Moreover, while fears of a new global recession might be receding, there were murmurings in Seoul about a possible new financial crisis affecting one of the euro area's weakest members - Ireland.
And EU officials were forced to reassure financial markets shortly after their arrival in Seoul over fresh concerns that Dublin would have to call for an EU bailout because of the country's record debt levels.
“We are monitoring the situation in Ireland on a permanent basis,” said said European Commission President Jose Manuel Barroso. “We have all the necessary instruments in place to act, if necessary.”
The G20 was expected to face less problems when it comes to financial reform.
Leaders were to reach a deal on so-called globally systemically important financial institutions - or banks that are “too big to fail.” However, special working groups tasked with identifying such banks were not expected to complete their work until the middle of next year.
During the talks, which end on Friday, leaders were also expected to endorse a deal reached last month by G20 finance ministers to reform the IMF in a way that gives more decision-making weight to emerging powers such as China and India.
The G20 was prefaced by a business summit attended by several leaders, including Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero.
In all, more than 30 heads of state and government were attending the summit. But French President Nicolas Sarkozy was only due to arrive in Seoul on Friday. - Sapa-dpa