The New Spartans head to Canada
The Europeans are the New Spartans. They head to the G20 in Toronto in their hair-shirts, newly frugal and stern in their attitude towards debt.
The G20, which includes the developing countries, has become the body to co-ordinate the global economy. When the banks were collapsing in 2008/9 it was the G20 that embraced stimulus programmes.
Now, as heads of government arrive in Ontario, there is no masking the divisions. In one corner are the Americans. They believe that economic recovery must take precedence over budget cuts. In an article in the Wall Street Journal, Timothy Geithner and Larry Summers (US treasury secretary and presidential economic adviser) wrote "we must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth".
President Obama has been firing off letters warning of repeating the mistakes of the past, when stimulus packages were withdrawn too quickly. The President then phoned the Chief Spart, German Chancellor Angela Merkel. She was not in the mood for turning. "Yesterday, during a phone call with Barack Obama," she said, "I told him how important budgetary consolidation was".
The hedge fund manager George Soros has weighed into the argument. He was the man who made a cool billion by betting against the British pound. Now he is warning that the budgetary savings policies risk destroying the European project, pushing weaker countries into a cycle of deflation. That, he believes, will "generate discontent and social unrest". He rails against countries reducing together their deficits to 3% to live within the rules of the EU Growth and Stability Pact. He says Germany wants to treat the EU's Maastricht Treaty as the "scripture which has to be obeyed without any modifications".
The European Spartans reject all of this out of hand. They speak with the zeal of new converts. The German Finance Minister, Wolfgang Schaeuble, admitted to the Financial Times that this was "one of the most passionately debated economic issues of the day". But he gave an emphatic "no" when asked if Berlin was acting prematurely in reining in its deficit. Governments, he said, should not become addicted to borrowing as a quick fix to stimulate demand. Germany is cutting spending by 80bn euros (£66bn) over four years.
"The idea that austerity measures could trigger stagnation is incorrect," says the President of the European Central Bank, Jean-Claude Trichet.
The Europeans simply do not believe their cuts will choke off growth. The President of the European Council, Herman Van Rompuy, told the European Parliament "the measures taken by the member states to reduce their deficits will not have a profound deflationary effect for the union as a whole - if they restore confidence in the economy, thereby stimulating both consumption and investment".
It is a belief in the virtuous cycle, that sound economies will breed confidence and confidence encourages spending and spending leads to growth.
The divide between the Europeans and Americans will dominate the meetings in Canada.
There will be discussion about a bank levy to reduce risks in the future. The UK, France and Germany all support it, albeit favouring different models. But the aim is the same: that banks make a contribution to "reflect the risks they pose" and to adapt their balance sheets accordingly. It may be hard to get consensus on this. Those countries who escaped the worst of the banking collapse such as Australia and Canada are opposed to a bank levy.
What the business community wants is a further reduction in trade barriers, but also access to capital. As Euro Chambers put it, the G20 "must ensure that businesses, especially small ones, have adequate, flexible and efficient access to finance, both from banks and capital markets".
It is a cry for the people who create the jobs to have access to finance.