REFILE-UKs Osborne backs closer UK deficit scrutiny by IMF - Reuters

Fri Apr 15, 2011 7:29pm EDT

(Refiling to fix day of week in first paragraph)

By David Milliken

WASHINGTON, April 15 (Reuters) - British finance minister George Osborne welcomed the prospect of closer international scrutiny of his deficit reduction programme after a gathering of major developed and developing countries on Friday.

Following talks between G20 nations in Washington on the sidelines of an International Monetary Fund meeting, Britain looked set to be named as a potential risk to global econom ic stability due to its large budget deficit.

The G20 also appeared poised to authorise IMF economists to take a closer look at China and Germanys large trade surpluses as well as the United States deficit.

"This is not something we should in any way be nervous about as a country. It is something we should positively welcome," Osborne told reporters at the British embassy while officials put the final touches on the G20 statement.

Osbornes Conservative party took power in May 2010 in coalition with the centrist Liberal Democrats, and a month later set out an emergency budget aimed at largely eliminating a budget deficit of over 10 percent of GDP over the next 5 years.

Osborne was confident that the IMF would endorse his budget measures, and hoped that the IMF analysis would help persuade other countries to take action on economic imbalances t hat risk triggering another global financial crisis.

"The proof will be in the pudding. These international processes do have a habit of gaining momentum and a will of their own once theyve started, and I think thats what w ere doing here," he said.

One of the biggest tensions is between China and the United States. The U.S. believes that China has an excessive trade surplus, bolstered by an undervalued currency, while China blames the U.S. for overly loose monetary and fiscal policy.

This week President Barack Obama set out deficit reduction plans aimed at cutting the U.S. budget deficit to 2.5 percent in 2015 from 10 percent now -- a more aggressive red uction than he had previously backed.

Labour finance spokesman Ed Balls had previously pointed to the slower pace of U.S. deficit reduction as evidence that Osborne was on the wrong track, and risked endan gering Britains economic recovery.

Osborne said Labour was now in "no mans land."

"The Labour Party are really now entirely isolated in the international community in arguing against the kind of pace of deficit reduction that is taking place in many c ountries," he said.

Osborne also denied that an excessive deficit reduction was to blame for the economic woes of Ireland, Greece and Portugal, and instead cited Spain as a new example of how credible budget reduction measures could help rebuild market confidence. (Editing by Andrea Ricci)