US tries to soothe foreign leaders' fears about ‘fiscal cliff’

Treasury Undersecretary Lael Brainard will try this weekend to soothe the fears of the world’s major economic powers about the “fiscal cliff” facing the United States.

Brainard, who is attending a G-20 finance ministers meeting in Mexico City, is prepared to be pressed for information about how the U.S. will deal with the slew of spending cuts and tax increases that are set to begin in January.

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The policy changes in the fiscal cliff are expected to push the U.S. into recession in 2013 unless Congress acts quickly. That has foreign leaders concerned about a spillover effect that could drag down the entire global economy.

Australia’s finance minister and the German delegation to the G-20 have telegraphed that they will ask the U.S. how it plans to avert the fiscal cliff during the weekend sessions.

German Finance Minister Wolfgang Schaeuble said in an interview that the G-20 meeting should focus on the fiscal cliff, Japanese debt as well as the Eurozone crisis.

Brainard expects a conversation “largely focused one the kind of balanced plan the president has put forward” to tackle the deficit, a senior Treasury official said Friday.

“Everyone recognizes that the US election lies before us,” the official said. “Of course the president has a plan, it is a balanced plan. … Of course our hope is that Congress will move quickly to act on that plan.”

Obama has put forward a proposal with tax increases and spending cuts that he says would cut the deficit by $4 trillion. The math includes previous spending cuts, savings from ending the Iraq war and reduced interest payments, however.

The president has demanded that the GOP agree to let the Bush-era tax rates in any fiscal cliff deal, but Republicans say that’s a non-starter.

The senior treasury official said that the European debt crisis remains “the strongest headwind” to the world economy.

With the U.S. awaiting the elections and China in the throes of a leadership change, the G-20 meeting is expected to yield little to no progress on major issues like the Eurozone debt crisis, China’s currency valuation, or developing nation demands for more say in the International Monetary Fund.

With the U.S. election just days away, Treasury Secretary Tim Geithner is staying away from the finance ministers meeting, the last chaired by Mexico before Russia takes the rotating helm of the G-20.