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G20 unlikely to press for bank reform

British officials are downplaying the chances of major breakthroughs on banking reform at this weekend's G20 summit in the South Korean city of Busan.

The event marks Chancellor George Osborne's first major outing on the international stage.

Having made a dramatic start to the task of cutting the UK's budget deficit — proportionately the largest in the G20 — with £6bn of immediate cuts announced last week, Mr Osborne is thought to be keen to stress to his counterparts the need to reduce deficits in those nations that have had the worst record on controlling borrowing.

At the same time, Mr Osborne also wishes to see the surplus nations in the G20, such as China, do more to boost domestic demand and consumption, and reduce the massive trade surpluses they run with the US and Europe.

These “global imbalances”, especially in Sino-American trade, have been blamed by many economists as the root cause of the financial crisis and the recession that followed.

Successive G20 communique’s have called on member states to coordinate the elimination of such imbalances, but with comparatively little effect. If anything, tensions between the White House and Beijing have heightened recently, complicated by Chinese diplomatic support for North Korea.

Although there is a broad consensus on the need for nations such as the UK to trim their borrowing, some figures in the US administration, such as Larry Summers, President Obama's economic adviser, have wondered aloud about the dangers if all the world 's major economies deflate at once.

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British officials are playing down the chances of any swift international agreement on the various plans for bank levies now being floated. The full G20 heads of Government summit, which will be attended by David Cameron in Toronto on June 26, will probably be the forum where the final shape of an international agreement is forged.

The coalition has indicated that, if necessary, the UK will unilaterally impose such a levy if international agreement is taking too long.

Yesterday the Business Secretary, Vince Cable, repeated the Government's support for “a levy on the banks to reflect the fact that — at least until banks are made safe through structural reform — the taxpayer is providing insurance: protection for which the banks should pay”.

Splits on the wisdom of a global bank levy persist, even after the IMF, at the request of the G20 published its proposal for two new taxes earlier in the year

The International Monetary Fund proposed two bank taxes in April but G20 asked it to refine its ideas after opposition from some countries, such as Canada, Brazil and China.