World leaders agreed on Sunday to take different paths for cutting budget deficits and making their banking systems safer, a reflection of the uneven and fragile economic recovery in many countries.

In a reversal from the unity of the past three crisis-era Group of 20 summits, the leaders left room to move at their own pace and adopt differentiated and tailored policies.

The G20 rich and developing economies tried to balance their contrasting priorities by pledging to halve budget deficits by 2013 without stunting growth, and to clamp down on risky bank behavior without choking off lending.

Our challenges are as diverse as our nations, President Barack Obama said. But together we represent some 85 percent of the global economy, and we have forged a coordinated response to the worst global economic crisis of our time.

In a sign of how much work was involved to forge this G20 consensus, negotiators spent at least 45 hours drafting the summit's final communique, said Dominique Strauss-Kahn, head of the International Monetary Fund.

The G20 allowed each country space to decide how to proceed with controversial provisions such as taxing banks to recoup bailout costs and implementing tougher bank capital rules.

It also steered clear of confrontation with China by dropping, at the last minute, a specific mention of the yuan currency, even though Beijing has just allowed it to resume its rise against the dollar.

The G20, which includes emerging economic powers as well as the developed economies where the economic trouble started, united last year to throw trillions of dollars into the battle against recession.

But that unity has begun to fray as countries emerge from crisis at different speeds and with different policy needs. Emerging Asian economies such as China have come roaring back while the U.S. recovery remains tepid and Europe lags behind.

The G20 is fragmented as it transitions out of its role as a crisis-fighting committee, said Tom Bernes, vice president at the Center for International Governance Innovation in Toronto.

While G20 leaders agree on the need for stronger financial regulation, actual details continue to be vague and lacking a solid deadline.... There is a huge unfinished agenda.

Obama acknowledged talk of G20 divisions but said the meetings showed these countries could come together and embrace shared interests. We can bridge our differences, he said.

EUROPE CLAIMS VICTORY

The Toronto meeting was billed as a final check-up before the next G20 summit in November in Seoul. That meeting is the deadline for leaders to agree policies on issues including bank capital rules, financial regulation, and voting rights at the International Monetary Fund.

The G20 must also show progress on a promise to rebalance the global economy. That means export-reliant nations such as China and Germany need to look inward for growth and indebted countries, including the United States, need to change their borrow-and-spend ways.

As the leaders met inside a downtown Toronto conference center encircled by a tightly controlled security perimeter, police clashed with protesters outside the zone and more than 500 people were arrested.

Since the G20 leaders last met in Pittsburgh in September, Greece's debt troubles have shifted the focus toward damaged public finances. Britain and Germany have joined Greece, Spain, Italy and other smaller European countries in putting forward plans to reduce spending.

The United States has preached patience, cautioning that the sudden removal of growth supports could tank the economy. European leaders have countered that fixing finances will improve confidence, and that is essential for growth.

European officials took the G20's commitment to cut deficits as a clear sign that the rest of the world had come around to Europe's point of view.

The EU came to Toronto with a clear agenda. The summit's result reflects widespread convergence around Europe's approach, European Union officials said in a statement.

Halving deficits looks easily achievable, considering Obama has already pledged to do that and Europe sees the target as a bare minimum.

Heavily indebted Japan appears to be the one major advanced economy that might struggle to hit the deficit mark. In the communique, the G20 acknowledged the circumstances of Japan and welcomed its plans to shore up finances.

Stabilizing debt as a percentage of total output within six years may be harder. Obama's budget forecasts show the debt ratio rising at least through 2015, and most advanced Western economies face rising costs as their populations age.

The IMF's Strauss-Kahn said deficit targets were less important than policies.

Talking about halving the deficits is oversimplifying the problem because it differs from one country to another, he said. I am more interested in the fact that countries do implement the right measures.

With growth likely to remain slow in most advanced economies, fast-growing emerging markets are increasingly expected to pick up the slack.

China gets most of the attention thanks to its soaring economy and huge population of relatively untapped consumers, but there were signs that other emerging powerhouses were beginning to feel put upon.

It's not fair that emerging economies should have to take on the job of rich countries to provide growth, Brazilian Finance Minister Guido Mantega told Reuters.

(Additional reporting by Brad Whitehouse, Reporting by Reuters G20 team; Writing by Emily Kaiser; Editing by David Storey)

Germany Japan United kingdom China