Collision course

Chancellor Angela Merkel called on world powers to coordinate plans for weaning their national economies off economic stimulus measures, and warned against creating new asset bubbles.

"There will of course be a discussion about exit strategies," Merkel told reporters before flying to Seoul for the meeting of the Group of 20 (G20) top rich and emerging nations.

"It is naturally desirable that the leading economic powers do not come up with answers which are too varied to the question as to when the exit strategy should begin," she said. "This could be a thoroughly lively debate."

Defusing the dollar

Asked about the United States' policy of "quantitative easing," which has seen the Federal Reserve pump 600 billion dollars into its fragile economy, Merkel said: "We are going to discuss this issue with the Americans in a spirit of partnership."

"Nobody has an interest in creating new bubbles. Rather, we must see to it that growth in the global economy this year is more sustainable and enduring than we had a few years ago," she said.

Critics argue that the Fed's quantitative easing amounts to an effective dollar devaluation, and has the potential to trigger a 1930s-style trade war if other countries respond in kind.

With this in mind, Merkel also pressed her fellow leaders to avoid any form of protectionism, amid criticism that certain countries, notably China and Japan, are keeping their currencies artificially low to encourage exports.

But she declined to criticize Beijing for its foreign exchange policy, saying: "I assume that China has a very strong interest in sending a positive signal from this summit."

"China also needs sustainable growth for its overall economic situation," the Chancellor added.

Germany is the world's second-biggest exporter after China. Its strong export sector has helped it stage an impressive economic comeback this year, but its trade surpluses have also drawn criticism abroad.

No fixed numbers

Merkel said Germany would not accept fixed targets for addressing countries' trade gaps.

"We reject quantified bandwidths for acceptable imbalances for good reason because ... competitiveness must be able to express itself, also in export ratios."

Merkel said Germany wants to see leaders commit themselves to the final stretch of the Doha round of global trade talks. She added that trade barriers posed the biggest danger to sustained world growth.

"The biggest danger for sustainable growth is currently coming from protectionism in its different forms," she said.

Author: Sam Edmonds (AFP, AP)
Editor: Michael Lawton