Cameron defends cuts, Geithner sees confidence

FRANK JORDANS - Associated Press,MATT MOORE - Associated Press

British Prime Minister David Cameron urged other governments to follow his country's efforts to reduce debts and boost confidence in the world economy, which U.S. Treasury Secretary Tim Geithner noted was already rebounding in the U.S.

"Our first priority is to kill off the specter of massive sovereign debts," Cameron said Friday at the World Economic Forum. "In many ways, we in Europe have been our own worst enemy" by building up debts and keeping too many barriers to money and trade flows, he said.

Geithner, the highest-ranking U.S. official to visit the World Economic Forum this year, told a panel that in the U.S. there was also greater recognition that debt needs to be cut. Still, he said, "There's more confidence now that the most acute part of the crisis is over, absolutely in the U.S. but that is even true globally."

He added that the mood in the world's biggest economy was improved because "we've got sustained expansion," but warned "It's not a boom. It's not going to offer the prospect of a rapid decline in the unemployment rate."

His remarks came a day after Moody's Investors Service said that the U.S. rating outlook remains under pressure, increasing the likelihood that it might fall to 'negative' from 'stable' over the next two years due to high levels of debt.

Cameron, in his first visit to the Forum since becoming prime minister, stressed that sovereign debt was one of the biggest threats to recovery, not only in Britain but across Europe.

Cameron's Conservative-led coalition government has imposed tough measures — from tax hikes to budget caps and an increase in value-added tax paid at the cash register — to reduce the country's budget deficits. The cutbacks have led to protests and criticism from some quarters that austerity will undermine growth.

"Remember what we started with in the U.K.: an economy built on the worst deficit, the most leveraged banks, the most indebted households, the biggest housing boom and unsustainable levels of public spending and immigration," Cameron said.

Those cuts, he said, have already had an effect, with the country's credit rating reaffirmed at the triple-A level.

Still, unemployment has risen and thousands will see some form of state benefit cut as the government tightens the belt on spending.

But that is a trade off many other European countries are increasingly resigned to as they try to juggle crippling levels of public debt in the wake of the global financial crisis.

"It is going to be tough, but we must see it through," Cameron said. "The scale of the task is immense, so we need to be bold in order to build this economy of the future. And the British people, I believe, understand these things."

French Finance Minister Christine Lagarde told a news conference that the country's recently adopted economic policy is focusing on good public finance reforms and improving competitiveness, "all to ensure there is job creation."

Restoring public finances, she said, is "the precondition to sustainable growth, and that means reducing the deficit (and) readjusting our debt trajectory because we want to be accountable to future generations and remain sovereign in our decisions."

The meeting's mood has improved since last year, but the 2,500 government and business leaders attending remained wary that global recession might return.

For Europe, Greek Prime Minister George Papandreou and Merkel will mark opposing poles on the spectrum of economic recovery when they take the stage in Davos Friday. Bailed-out Greece is still mired in recession whereas Germany has rebounded to expand at the fastest pace since its reunification two decades ago.

The U.S. lies somewhere in between.

"There is a much greater recognition across the U.S. political system that our fiscal position is unsustainable in the long-run. It's going to require a substantial effort to bring that under control," Geithner said, a reference to the recent mid-term elections that saw Republicans take control of the House amid plans to cut spending and ease taxes.

"What business and individuals need is the ability to understand over time how we're going to solve it," Geithner said. "We know we're going to solve it, but the idea ... is to lay out a path to allow people to plan and adjust."

As Geithner and Cameron discussed the way back to growth, U.N. chief Ban K-moon warned a separate panel that the world's current economic model itself was a problem, an environmental "global suicide pact" that will result in disaster if it isn't reformed.

"We need a revolution," the secretary-general of the U.N. told a panel at the World Economic Forum on how best to make the global economy sustainable. "Climate change is also showing us that the old model is more than obsolete."

His words received a mixed reception from fellow panelists including Mexico's President Felipe Calderon, Indonesian President Susilo Bambang Yudhoyono, Walmart CEO Mike Duke and Microsoft's Bill Gates.

Yudhoyono, whose country is often labeled a keeper of one of the world's last major rain forests, said Indonesia was trying to plant 1 billion trees a year. But he pushed back against the suggestion that developing countries should give up on their aspiration to achieve the same level of wealth as the rich world.

This view was partly shared by Bill Gates, who told the panel that "you cannot have a just world by telling people to use less energy than the average European."