MORE GOVERNMENT spending will give the world economy no more than a “sugar high” if banks are not stabilised, the World Bank said yesterday, as financial policymakers at their G20 meeting bickered over ways to battle the crisis.

That struck at the heart of a rift between Washington, which is pushing for governments to spend more, and European capitals, which want the response to the crisis to focus on rapid moves on regulation in addition to doling out public cash.

G20 finance ministers and central bankers began talks in southern England yesterday while under growing pressure to resolve their differences and show progress on the road to a broader summit of world leaders in London on April 2nd.

Some progress is being made: the leaders are expected to back a call this week to double International Monetary Fund resources to help emerging economies which have been hit by a collapse in global demand for exports, and the severing of credit lines.

The meeting is also tasked with making good on pledges made in November on issues ranging from tax havens to banking regulation, and how countries deal with the toxic assets at the heart of the crisis.

“If you don’t take on the banking issue, the stimulus is just like a sugar high. It pushes some energy into the system, but then you get the letdown unless you reopen the credit markets,” World Bank president Robert Zoellick said, speaking in London before the meeting.

Japanese leaders sided with the US push for more spending, but the unity of the group of developed and developing nations looked seriously compromised after Paris accused Washington of disregarding the urgent need for tough market regulation.

“The United States is insisting on the need for a strong, rapid and co-ordinated stimulus. Why? Because they were the last ones to put in place their plan and they are facing a bigger crisis,” French finance minister Christine Lagarde said. – (Reuters)