In Berlin, former European Central Bank chief economist Otmar Issing has come out in support of German Chancellor Angela Merkel's push for savings measures and a bank tax, which contradict advice given by US President Barack Obama.

"We do not see the resolution of the current imbalances in countries accumulating increasingly more debt," said Issing, who heads the team of economists advising Chancellor Merkel. He added that further increasing national debts would weaken the confidence of the markets.

Germany for austerity

Chancellor Merkel has emphasized that Germany would continue to reduce its deficits; contrary to President Obama's warning that drastic budget cuts could hamper global economic recovery.

"This is not about a radical savings program, but about the fact that the same stimulus programs need not remain in place during continuing economic recovery," Merkel said Monday in Berlin.

Last week, Obama wrote a letter urging world leaders to maintain public spending, warning that failure to do so could harm economic recovery. The letter did not go down well with European leaders, several of whom have already announced their intention to do the opposite -- by imposing major austerity plans.

Europe unites

In the wake of the European economic crisis, French President Nicolas Sarkozy and Chancellor Merkel have joined forces to push for greater financial regulation ahead of the G-20 summit in Toronto.

In a joint letter to Canadian Prime Minister Stephen Harper, the two leaders called for an international agreement to introduce a tax on financial transactions and a bank levy at the June 26-27 meeting of the 20 biggest industrialized and developing economies.

"Our work is not yet finished. Recent financial turbulences have shown that more needs to be done to ensure financial stability," the Merkel-Sarkozy letter said.

In the past, Merkel has repeatedly said that all 27 European Union member states should be involved in closer economic coordination and not just the 16 eurozone countries.

Austerity measures across Europe

Spanish Prime Minister Jose Luis Rodriguez Zapatero's government recently introduced labor and pension reforms and stress tests for banks as concerns over economic instability escalated. Although Spain is not formally a member of the G20, it holds the rotating EU presidency and Zapatero is set to attend the upcoming summit.

Sarah Harman (dpa/AFP/Reuters)
Editor: Rob Turner