G-20 leaders closed in on a deal on Sunday to slash national deficits within three years, seeking to overcome divisions among world powers on how best to nurture a fragile global economic recovery.

The heads of the world's major industrialised powers agreed to adopt what they dubbed “growth-friendly deficit reduction” proposals, but applied on a country-by-country basis, bowing to concerns from emerging nations.

“Recent events highlight the importance of sustainable public finances,” said a draft final summit statement obtained by AFP.

In the document, leaders promise to put in place “plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances.

The deal will mark a minor triumph for European leaders, led by German Chancellor Angela Merkel, who have pushed to rein in ballooning debt despite fears from the United States that it would stifle fledgling growth.

Ms. Merkel stressed, however, that the deal, which also includes a plan for nations to stabilise or reduce government debt-to-GDP ratios by 2016, would only apply to the most developed industrialised nations.

“This is an important common goal that will lead to sustainable growth,” she told reporters. “We as Europeans can say that our path has found support. The timetable to cut deficits in half till 2013 is clearly an exit strategy,” she continued, adding it was a “very ambitious” plan reached after discussions with the United States. Signs emerged late Saturday at the start of two-day G-20 summit in downtown Toronto that America, the world's top economy despite its $1.3-trillion deficit, was prepared to go along with proposals to halve public debt by 2013.

U.S. President Barack Obama told British Prime Minister David Cameron that despite “differentiated responses” to the financial meltdown, “we're aiming at the same direction: long-term sustainable growth.

Britain, along with France and Germany, have already led moves to slash back record public deficits.

But Brazil warned Europe's plans to radically cut government spending would hurt emerging economies, comments echoed by U.N. chief Ban Ki—moon.

“If the cuts take place in advanced countries it is worse, because instead of stimulating growth they pay more attention to fiscal adjustments,” said Brazilian Finance Minister Guido Mantega.

Mr. Ban also warned the G-20 working dinner that the challenge facing the group had changed from when it last came together in Pittsburgh in September.

Timetable

“Let me emphasise this evening that, under any circumstances we must not balance budgets on the backs of the world's poorest people,” he said.

Canadian officials who first floated the three-year debt reduction timetable acknowledged it was a challenge to win everyone over to their side. “Nobody said agreeing specific targets was going to be easy,” acknowledged Canadian government spokesman Dimitri Soudas early Sunday.

If a deal is reached “it will be the first time that G-20 leaders will have specific agreements... that will set out a path towards fiscal consolidation,” he stressed.

The G-20 talks opened late Saturday on the heels of a G-8 summit, ringed by tight security that has seen some 20,000 police deployed around Toronto.

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