Stock markets perked up on Monday after world leaders failed to agree on a global bank levy and softened the timetable for new capital requirements at a do-little G20 summit in Canada which posed questions about the forum's effectiveness.
Shares climbed in Europe and Asia, led by banks, after the U.S. Congress adopted a landmark financial regulation package on Friday and the G20 dropped a 2012 deadline for banks to adopt more stringent risk-provisioning rules.
Leaders of the main developed and emerging economies papered over differences on the balance between reviving economic growth and cutting budget deficits at weekend talks in Toronto, in what was seen as a setback for U.S. President Barack Obama.
In a reversal of the unity of the past three crisis-era G20 summits, the leaders left room for each country to move at its own pace and adopt "differentiated and tailored" policies.
European leaders emerged with what they saw as green light to pursue austerity measures they consider essential to restore market confidence in the euro dented by the Greek fiscal crisis and wider concerns about high European sovereign debt.
"To be honest, it was more than I expected," German Chancellor Angela Merkel said of the G20's non-binding pledge to halve budget deficits by 2013 and balance budgets from 2016.
The United States had pressed the Europeans ahead of the meeting to avoid withdrawing economic stimulus measures prematurely and urged countries with current account surpluses such as Germany to boost domestic demand.
France is likely to be the next European state to announce deficit-cutting steps this week, with the cabinet due to approve measures on Wednesday to curb public spending, and further cuts to be spelled out in September in a tough 2011 budget.
Under orders from President Nicolas Sarkozy not to speak of "rigueur" -- the French term for austerity -- ministers have been salami-slicing announcements of deeper cost savings.
"UNTOUCHABLE GOAL"
Prime Minister Francois Fillon said last week the government might have to reduce tax breaks next year by 8.5 billion euros rather than the 5 billion initially targeted. Budget Minister Francois Baroin said at the weekend he was looking for up to 10 billion euros in savings on tax breaks.
"We have an untouchable goal to reduce the deficit level by two points from 8 percent to 6 percent next year. That's never been done before," Baroin told France 2 television, adding the 2011 budget would be "the most difficult in more than 30 years."
In Spain, workers on Madrid's underground rail system began a three-day strike against wage cuts that are part of an austerity plan to cut a massive budget deficit. The Socialist government aims to save 15 billion euros over the next 18 months partly by cutting civil servants' pay by 5 percent.
In Greece, the main labour unions plan a national strike on Tuesday in protest at a planned radical reform of the pension system, raising the retirement age and cutting benefits, that was mandated by a bailout agreement with the IMF and the EU.
In a sign that markets are still nervous about euro zone debt, the premium investors charge to hold French, Belgian, Spanish and Italian bonds rather than benchmark German bunds rose to their highest levels since early June.
G20 VALUE QUESTIONED
The Toronto summit exposed issues that are harder to resolve when countries loosely united under the G20 banner are emerging from the downturn at different speeds and with divergent priorities.
China avoided a scolding over the weak yuan, which has fuelled its export boom, by announcing a more flexible foreign exchange policy a week before the summit and letting the currency rise by 0.5 percent against the dollar last week.
But Beijing also refused to let the G20 praise it for the shift, insisting the issue had no place in international forums.
On trade liberalization, the G20 arguably moved backwards, dropping 2010 as the target date for concluding the long-stalled Doha round of World Trade Organization negotiations.
On financial regulation, the leaders endorsed a long phase-in for new Basel III bank capital and liquidity rules, allowing different speeds for different countries at the risk of encouraging regulatory arbitrage.
"We welcome the fact that the G20 has stepped away from imposing an arbitrary timeline for the implementation of new measures and has instead agreed to phase-in requirements agreements as and when national economic conditions allow," the International Banking Federation said in a statement.
Opposition from Canada, Japan, Brazil and Australia, whose banks did not need state bailouts during the financial crisis, thwarted European calls for a common tax on banks to shield taxpayers from the costs of rescuing the financial sector.
But the central unresolved rift was over the pace of fiscal consolidation after governments in the industrialized world ran up huge debts and deficits coping with the crisis.
While Obama was diplomatic in masking disappointment at the communiqué, others were far more critical of the German-led European austerity drive.
Europe was "absolutely wrong," Argentine President Cristina Fernandez told Reuters in an interview in Toronto.
"If European countries proceed with their fiscal austerity plans, the global economic turnaround may slow down," said South Koreaan President Lee Myung-bak, another G20 member.
Analysts said the meagre summit outcome raised doubts about the G20's value as a forum for managing the world economy.
"The G20 is fragmented as it transitions out of its role as a crisis-fighting committee," said Tom Bernes, vice-president of the Center for International Governance Innovation in Toronto.
"While G20 leaders agree on the need for stronger financial regulation, actual details continue to be vague and lacking a solid deadline.... There is a huge unfinished agenda."