Merkel rejects Obama warnings that cuts will damage global recovery

German Chancellor set for showdown with US President at G20 summit over concerns euro still not safe from collapse

Germany and the United States appear set for a heated showdown at this weekend's G20 summit in Canada after Chancellor Angela Merkel flatly rejected warnings from President Barack Obama that Europe's attempts to save its way out of the debt crisis could put fragile global economic growth in danger.

Germany has the continent's largest austerity package, which will see up to €80bn worth of spending cuts imposed under a draconian savings programme agreed by Ms Merkel's coalition government a fortnight ago.

Spain has also recently unveiled a €15bn savings programme extended over two years and Britain followed suit on Tuesday with one of its biggest austerity packages since the Second World War.

But Europe's axe-wielding has raised concerns in Washington that a sudden round of belt-tightening in one of the world's key economic regions will put a brake on the global economy at a time when growth is of paramount importance.

President Obama has written to European leaders in the run-up to this weekend's G20 summit setting out his fears. "I am concerned about weak private sector demand and continued heavy reliance on exports," he wrote in a clear reference to Germany. It was announced in Berlin yesterday that Ms Merkel, the leader of Europe's largest economy, had spent 15 minutes on the phone with the US President discussing the matter.

However, in an attempt to regain badly needed popularity following her perceived bungling of the euro crisis, Ms Merkel refused to concede to US fears about growth inhibition. Defending her savings programme yesterday, she insisted: "Good savings programmes speed up private consumption because they give people a sense of security." Her agenda at the G20 is to secure an agreement for a bank and financial transaction tax.

She added in a recent rebuttal of economic stimulus packages: "If we don't go for sustainable growth, but just create puffed-up growth, we will pay for that with another crisis." Political observers have pointed out that Ms Merkel's political survival rests on the success of her austerity package.

Behind the scenes yesterday the German government admitted Berlin will be at odds with Washington at the G20 meeting over how best to tackle the economic crisis. "It is a question of what is worse: the threat of economic collapse or the threat of a debt crisis," is how one source put it.

Ms Merkel's ailing coalition, which is in the midst of its deepest popularity crisis since it was elected eight months ago, has been given an unexpected boost by recent industry and chamber of commerce forecasts predicting that Germany is on course to notch up an unexpected 2.3 per cent growth rate this year.

Hugely encouraged by that news, the chancellor has refused to bow to criticism. Declaring that the crisis was effectively over in Germany, she said: "These results are sensational. They are an important sign which should give us encouragement."

But criticism of her government's economic policies shows no sign of abating. George Soros, the renowned Hungarian investor and currency speculator, yesterday warned that the deficit-slashing policies could bring about the collapse of the euro and the break-up of the European Union unless they were radically altered to promote growth.

"Germany is isolated in the world. Because of its history it is more afraid of inflation than recession. In the rest of the world it's the other way round," Mr Soros said in an interview with Germany's Die Zeit newspaper. "Unfortunately the collapse of the euro and the European project cannot be ruled out," he added.

Mr Soros argued that Germany's concentration on cutting its own deficit would eventually drive its European neighbours into deflation. He suggested that the result would be a prolonged economic stagnation coupled with social unrest and a rise in nationalism and xenophobia. The Nobel prize-winning economist Paul Krugman also warned recently that Germany's "deficit hawks" were risking a return to the economics of the Weimar Republic.

Mr Soros claimed that Europe faced less of a currency and deficit crisis than a bank crisis. He proposed recapitalising banks with subsidies drawn from European rescue funds. Germany, Mr Soros said, treated the Maastricht treaty and its rules governing the stability of the euro as if it were a "holy scripture" but did far too little to stimulate growth.

"If the Germans don't change their policies, then it would be helpful for the rest of Europe if they abandoned the single currency," he said. "The euro would then drop in value and the mark would go up. Then the Germans would finally realise how unpleasant an overvalued currency can be."

Painful medicine

€80bn the amount Germany wants to save by 2014

€30bn to be slashed from welfare payments including unemployment benefit over next four years

€2.3bn to be raised by new taxes including a levy on domestic air travel.

40,000 number of armed forces jobs to be cut

The sun rises over St Andrews golf course, but will it be a new dawn for the Royal and Ancient Golf Club?
sportAnd it's Yes to women (at the R&A)
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
footballToure's lack of defensive work is big problem for City
voicesApple continually kill off smaller app developers, and that's no good for anyone
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Liam Neeson said he wouldn't

Liam Neeson's Downton dreams

Wembley Stadium
footballNews follows deal with Germany
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
A 'Sir Alex Feguson' tattoo

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear

Thriller is set in the secret world of British espionage

Life and Style

ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Life and Style

Bomber jacket worn by Mary Berry sells out within an hour

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Volunteer your expertise as Trustee for The Society of Experimental Biology

Unpaid Voluntary Position : Reach Volunteering: Promising volunteer Trustee op...

Email Designer

£30000 - £35000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Psychology Teacher

£110 - £130 per hour: Randstad Education Reading: Psychology Teacher needed fo...

Food Technology Teacher

£85 - £120 per day: Randstad Education Cheshire: Randstad Education are curren...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week