U.S., E.U. on different paths

LONDON - A transatlantic rift is growing over the right medicine for Europe's financial crisis, with Britain announcing its steepest cuts in decades Tuesday and Germany defending its own austerity measures after a warning by President Obama that budget-slashing could threaten the global recovery.

Britain's emergency budget is the latest in a string of deep cuts in public spending and reflects new resolve in Europe -- after Greece was pushed to the brink of bankruptcy -- to tackle debt before worrying about growth.

As leaders of the Group of 20 economic powers prepare to assemble later this week in Canada, that single-minded focus is worrying the United States. Obama wrote a letter to world leaders Friday warning against excessive spending cuts.

German Chancellor Angela Merkel fought back this week, defending her government's $80 billion savings plan as British treasury chief George Osborne forged ahead Tuesday with his own grim budget.

Many European analysts agree that taming deficits is the more urgent priority.

Obama "has a point, but there are some countries that don't have a luxury of a choice; they have got to get a grip and start cutting quickly because the alternative of becoming the next Greece is not palatable to them," said Jonathan Loynes, chief European economist at Capital Economics in London.

Britain's plan to cut debt

Shoppers will pay higher sales taxes, wealthy people will be hit for higher capital gains taxes and banks will be charged a new levy on profits, a move already approved by France and Germany.

In Germany, a spokesman for Merkel said she talked by phone Monday with Obama about the letter he wrote to G-20 leaders. The letter was seen as a criticism of Germany's plan to reduce its deficit, but the spokesman said Obama did not pressure Germany to continue stimulus spending by piling up more debt. The spokesman spoke on condition of anonymity in keeping with government policy.

Europe's leaders are stuck in a quandary: They must bring down mammoth debt through spending cuts to ward off economic panic, but the measures are bound to stunt growth. And it will probably take years to determine whether they chose the right medicine and dosage.

'A major drag'

"My suspicion," Loynes said, "is that it will be a major drag on the economy for a few years, and it may be we decide in the future whether they went too aggressively, but the political and market climate right now is such that they had no choice."

Economic stagnation in Europe would hurt the United States by crimping its exports just as it is trying to limp out of its own slump. But in Europe, Obama's concerns are trumped by a desire to stabilize the European Union and the euro.