Economic issues will feature front and centre when financial leaders of the G20 group of nations meet for a two-day summit in Pittsburgh on Thursday and Friday.

Together, G20 nations make up about 85 per cent of the world's economic activity. Among the issues on the summit agenda are:

Bank bonuses

Outrage in Europe over bankers' runaway pay will be a key issue.

Earlier this month, European leaders, including French President Nicolas Sarkozy, German Chancellor Angela Merkel and British Prime Minister Gordon Brown, signed a letter urging the international community to put hard caps on how much financial executives are paid.

French President Nicolas Sarkozy has threatened to boycott the G20 summit unless caps on banker pay packages can be implemented. But U.S. President Barack Obama, shown walking with Sarkozy in Strasbourg, France, in April, is cool on the idea of hard salary caps. (Pablo Martinez Monsivais/Associated Press)

"The abatement of financial tensions has led some financial institutions to imagine they can return to the same modes of action prevalent before the crisis," reads a joint letter signed by the three leaders on Sept 3, 2009. "This is not an option."

Taxpayer outrage over seemingly outlandish pay packages at European banks given out even as the banks were receiving trillions in taxpayer bailouts is palpable in Europe. Sarkozy even threatened to boycott the summit entirely unless the issue is addressed.

"We are determined to change the rules," French Finance Minister Christine Lagarde told the BBC earlier this month.

The outrage is more muted in the United States. The issue of executive compensation has moved to the back burner as the domestic economy shows sign of a turnaround, equity markets near their pre-crash highs and the nation focuses on a divisive debate over health care reform.

Earlier this month, U.S. President Barack Obama urged a Wall St. audience to structure compensation based on long-term goals, not short-term profits.

The Wall Street Journal reported last week that the Federal Reserve is drafting a proposal to give it the ability to block any compensation scheme that it thinks would encourage Wall St. employees to take too much risk.

Putting limits on personal compensation is always a thorny issue in the U.S., where a libertarian tendency toward free markets at all costs runs deep.

The Fed plan would focus largely on how bankers are paid but not necessarily on how much they are paid.

European Commission President Jose Manuel Barroso told French television over the weekend that the EU should limit bonuses regardless of whether or not the U.S. agrees to a hard cap.

Turning off stimulus taps

Another somewhat divisive economic issue is the question of when and how central bankers should turn off the taps to the flood of money they used to stimulate the economy.

Despite the nascent signs of economic recovery, fears remain that curtailing government spending and hiking interest rates too soon could result in a "double dip" recession.

"You're seeing the first signs of positive growth now in this country and countries around the world," U.S. Treasury Secretary Timothy Geithner said earlier this month.

Prime Minister Stephen Harper, shown in a meeting with Barack Obama in the Oval Office this week, left the door open to more fiscal economic stimulus when he called Canada's economic recovery 'extremely fragile' on Monday. (Charles Dharapak/Associated Press)

"We've come a very long way, but I think we have to be realistic: we've got a long way to go still."

German Finance Minister Peer Steinbruck recently called for the reduction of the government's fiscal measures as soon as possible.

On Monday, Prime Minister Stephen Harper called Canada's economic recovery "extremely fragile" and suggested maintaining it will require more policy stimulus and a concerted effort from all levels of government.

"We can begin to consider an exit strategy, but at this time the real priority continues to be to … deliver our stimulus measures, [and] that means we have to continue in that regard," Harper repeated on Wednesday.

"The agenda has shifted from 'Will we recover?' to 'How are we recovering?' and even, 'Do we need to start removing stimuli?'" Giles Wilkes, an economist with the U.K.-based liberal think tank CentreForum, said recently.

"I think a lot of the meeting will be about when should we withdraw," said Wilkes. "They want to co-ordinate it. If it is a malco-ordinated adjustment, you run the risk of real dislocation."

Trade disputes

Trade and tariff issues are also likely to be discussed.

The dispute over softwood lumber was front and centre in economic discussions between Canada and the U.S. for years. More recently, "Buy American" provisions included in the U.S. stimulus plan have angered Canadian companies by effectively blocking them from bidding on U.S. contracts.

A recent U.S. decision to impose tariffs on Chinese tires sold in the U.S. infuriated Beijing, which condemned the move as protectionist and said it violated global trade rules.

German Chancellor Angela Merkel backs sweeping new regulations for financial markets and bank compensation plans. (Michael Sohn/Associated Press)

Obama also wants the international community to agree to a global compact to avoid the dangerous trade imbalances that many believe contributed to the recession.

Delegates may well sign on to Obama's "framework for sustainable and balanced growth," but considering the ballooning U.S. federal deficit (forecast to sit at $1.58 trillion US by the end of September after hitting a record $455 billion US last year), it remains to be seen whether they will heed what America says — not what it does.

And they're also unlikely to sign on to anything that might remove their manoevring room in terms of domestic policy, so any new commitments may well lack enforceability

China has not been shy about voicing concerns that the United States' growing trade imbalance might have a negative impact on the $800 billion US worth of U.S. treasuries Beijing holds in its foreign currency reserves. The value of the U.S. dollar has been sliding of late and currently sits at its lowest level in more than a year.

Beijing is also wary that any rebalancing plan could be used as a club against China's huge trade surpluses.

Obama has tried to downplay trade schisms and vowed in his Wall St. address last week that the United States will work diligently to expand free trade agreements and implement existing agreements.

Climate change

The discord is not limited to financial matters. Most G20 nations agree that work must be done to address climate change, but there is serious international disagreement on how best to do that.

On Tuesday, Obama urged world leaders who were in New York for a one-day climate change summit to work together to prepare a new treaty on carbon dioxide emissions to replace the Kyoto Protocol, which expires in 2012.

Smoke billows from the chimneys of a power station in New Delhi, India. World leaders discussed a successor treaty to the Kyoto Protocol on carbon dioxide emissions in New York this week. (Vijay Mathur/Reuters)

The meeting of 100 world leaders at the request of UN Secretary General Ban Ki-moon was aimed at generating political momentum to draft a successor to the Kyoto Protocol, which many of the world's major polluters , including the U.S., never ratified.

"Each of us must do what we can when we can to grow our economies without endangering our planet — and we must all do it together," Obama said Tuesday.

Obama said he will use the Pittsburgh summit to push G20 members to phase out subsidies for fossil fuels.

An international status report

Ultimately, the summit is the first opportunity to ensure that G20 nations are all doing what they pledged to do when they last met as a group in London in April.

At that time, the talks were dominated by a push to consolidate monetary policies to stimulate the global economy.

In his weekly radio and internet address last Saturday, Obama called the upcoming Pittsburgh summit a "checkup to review the steps each nation has taken — separately and together — to break the back of this economic crisis."

With files from The Associated Press