G20 leaders Sunday closed in on a deal to slash national deficits within three years, aiming to narrow divisions among world powers on how best to nurture a fragile global economic recovery.
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| Leaders of the G20 nations gather at the opening plenary session of the G20 Summit in Toronto, Ontario June 27, 2010. REUTERS/Jim Young |
The heads of the world's major industrialized powers agreed to what they dubbed "growth-friendly deficit reduction" proposals, to be applied on a country-by-country basis, bowing to concerns from emerging nations.
Canadian Prime Minister Stephen Harper told his G20 counterparts there was a "tightrope that we must walk to sustain recovery," adding "it is imperative we follow through on existing stimulus plans."
"But, at the same time, advanced countries must send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order," he insisted.
A draft of the final G20 communique obtained by AFP stressed "the importance of sustainable public finances" by halving deficits by 2013.
The leaders promise to put in place "plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances," it added.
The deal will mark a minor triumph for European leaders, led by German Chancellor Angela Merkel, who have pushed to rein in ballooning debt despite fears from the United States that this could stifle fledgling growth.
Merkel stressed, however, that the deal, which also includes a plan for nations to stabilize or reduce government debt-to-GDP ratios by 2016, would only apply to the most developed industrialized nations.
"This is an important common goal that will lead to sustainable growth," she told reporters. "We as Europeans can say that our path has found support.
"The timetable to cut deficits in half by 2013 is clearly an exit strategy," Merkel continued, adding it was a "very ambitious" plan reached after discussions with the United States.
Signs emerged late Saturday at the start of a two-day G20 summit in downtown Toronto that the United States, the world's top economy saddled with a huge 1.3-trillion-dollar deficit, was prepared to go along with the plan.
US President Barack Obama told British Prime Minister David Cameron that despite "differentiated responses" to the financial meltdown, "we're aiming at the same direction: long-term sustainable growth."
Britain, along with France and Germany, have already led moves to slash back record public deficits, which have been inflated by stimulus spending to keep their economies afloat.
But Brazil warned Europe's plans to radically cut government spending would hurt emerging economies, comments echoed by UN chief Ban Ki-moon.
"If the cuts take place in advanced countries it is worse, because instead of stimulating growth they pay more attention to fiscal adjustments," said Brazilian Finance Minister Guido Mantega.
Ban also warned G20 leaders that "under any circumstances we must not balance budgets on the backs of the world's poorest people."
The draft accord also called for emerging nations to show greater flexibility on their currencies -- an implied nudge to China, long accused of undervaluing its yuan against the US dollar.
"Emerging surplus economies will undertake reforms tailored to country circumstances to... enhance rate flexibility," the draft said.
Chinese President Hu Jintao, however, blamed major currencies for the volatility on exchange markets, as he slammed protectionism and called for greater free trade.
"We must take concrete actions to reject all forms of protectionism, and unequivocally advocate and support free trade," Hu told his G20 counterparts.
He did not touch on the issue of the yuan's value, which China last week said would be allowed to float more freely, but lamented that "exchange rates of major currencies fluctuate drastically and international financial markets suffer from persistent volatility."
The G20 talks came on the heels of a G8 summit, ringed by tight security that has seen some 20,000 police deployed around Toronto.
Violence flared Saturday on the fringes of a large demonstration, with police saying they had arrested more than 580 people, some of whom had been charged.
