By Jan Strupczewski
BRUSSELS (Reuters) - The European Union will call on China this week to boost domestic demand and on the United States and Japan to tackle their public deficits as part of global efforts to rebalance growth, an EU document showed.
Financial leaders from the world's 20 biggest developed and developing economies (G20) meet in Washington later this week for talks that are likely to be dominated by risks to global growth and the euro zone's deepening sovereign debt crisis.
The document, obtained by Reuters, sets out the priorities for G20 delegations from the 27-nation bloc.
"Both large external surplus and deficit economies need to take appropriate measures to ensure a rebalancing of global demand," it said.
"The consolidation plans to be undertaken in most EU countries, in the U.S. and in Japan need to be accompanied by appropriate policies in other regions of the world so as to avoid an undesired compression of global demand."
To prevent this, countries with external surpluses should move to boost domestic demand.
"In this context, the G20 should focus on the role that exchange rate regimes, and in particular the exchange rate of the renminbi, should play in rebalancing world growth," it said.
To involve China, the world's second biggest economy, more in global economic governance and reflect its growing power, there have been discussions to include the renminbi in the basket that forms the Special Drawing Right (SDR) -- an artificial IMF currency.
Advanced economies have set the condition that the renminbi has to be convertible to join and China has no timetable for announcing such full convertibility.
But the tone of the EU document appeared softer, saying currencies that would join the basket would have to fulfill "substantial" rather than full convertibility standards.
By allowing its tightly managed currency to rise, export giant China would also let other Asian currencies, now kept competitively low, to rise, and boost demand in Asia.
This could help compensate for lower demand in advanced economies as they curb government spending. In Toronto in June 2010, G20 leaders, facing market concern about rising debt, agreed to halve budget deficits by 2013.
"The EU considers that the G20 should focus on ... fiscal consolidation following the Toronto commitments and in particular the need for the U.S. and Japan to adopt credible medium-term fiscal consolidation plans," the document said.
The EU itself is fiercely consolidating fiscal policy to regain market confidence in the sustainability of its policies.
"Fiscal consolidation is a top priority for all countries in the EU, even though the extent of necessary adjustments differs across the countries," said the document, endorsed last week by EU finance ministers.
While Greece, Ireland, Portugal, Spain and Italy are under most pressure from markets to reduce budget deficits, the euro zone's biggest economy Germany expects a deficit of just 1.5 percent of GDP this year and a balanced budget in 2014.
Economists say Berlin may balance its books already this year as growth is likely to be stronger than planned. Germany, the biggest exporter in Europe, also has a large external surplus.
U.S. Treasury Secretary Timothy Geithner pressed Berlin already twice in September -- at a meeting of the G7 in France and at talks of EU finance ministers in Poland on Friday -- to help euro zone growth with a less restrictive fiscal stance.
But he got a cool response, with some euro zone ministers pointing out Washington should first tackle its own fiscal problems before offering advice to others.
EURO CRISIS IN FOCUS
Euro zone debt has been in market sights ever since Greece was forced to ask for emergency lending from the EU and the International Monetary Fund in 2010 when it had been overspending for years and tweaking statistics to hide it.
The regional crisis, which has also forced Ireland and Portugal to seek help from international lenders and is now threatening to claim Spain and Italy, will feature prominently in the Washington discussions.
EU officials are likely to update their G20 counterparts on the steps the single currency area was taking to boost its financial defenses, but no major policy breakthrough was expected at this stage, one G20 official said.
The EU document also said the EU was ready to discuss a further strengthening of the tools of the International Monetary Fund to support crisis-hit countries, but gave no specifics.
"The EU is open to discuss the need for further enhancement of the IMF's toolkit to support countries during systemic stress," the document said.
"It will be important to clearly identify whether any additions to the Fund's lending toolkit are for crisis prevention or crisis resolution purposes... The need for additional mechanisms and facilities should be properly justified."
A G20 official said no increase in financial resources for the IMF was now under discussions.
(Reporting by Jan Strupczewski; Editing by John Stonestreet)