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G20 to adopt debt targets proposed by Canada

Heads of state attend the first plenary session of the G20 summit on June 27, 2010 at the convention center in Toronto, Ontario. ERIC FEFERBERG/AFP/Getty Images)

June 27, 2010

TORONTO (THEWINDSORSTAR)  – Leaders of the G20 have agreed to a proposal Sunday from Prime Minister Stephen Harper to accept concrete targets on cutting their deficits and paying down debt, according to a summit communique obtained by Canwest News Service.

While police once again locked horns with protesters on the streets of Toronto, the prime minister was actively lobbying his fellow leaders to forge a consensus among nations with different economic outlooks on the best way to sustain the global recovery.

Canada has been pushing for G20 countries to cut their deficits in half by 2013, and at least stabilize their debt-to-GDP ratios by 2016. On Sunday afternoon, just hours before the summit was to end, a communique described as “99 per cent” complete suggested that Harper won the day.

According to the draft document obtained by Canwest News Service, countries agreed to implement “growth friendly fiscal consolidation plans.”

“Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016,” it said.

Beyond making that commitment to a benchmark, the nations are free to decide through their own policies about how to get there through a mixture of spending cuts or tax hikes.

“Recognizing the unique circumstances of Japan, we welcome the Japanese government’s fiscal consolidation plan announced recently with their growth strategy. Those with serious fiscal challenges need to accelerate the pace of consolidation. Fiscal consolidation plans will be credible, clearly communicated, differentiated to national circumstances and focused on measures to foster economic growth.”

The prime minister repeated his call for the G20 to adopt his proposed targets in his opening remarks as the summit’s plenary session on Sunday. Harper said the group needed to “act with the same unity of purpose, the same of urgency and the same commitment to the enlightened exercise of our national sovereignty, as we did in the depths of the crisis.”

“The recent skittishness of markets is telling us that they are awaiting our actions, actions that must be decisive, but also co-ordinated and balanced,” Harper said. “Here is the tightrope that we must walk to sustain recovery. It is imperative we follow through on existing stimulus plans, those to which we committed ourselves last year, 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.”

But U.S. President Barack Obama, as well as Indian Prime Minister Manmohan Singh, have warned that the global economic recovery could be imperiled if governments move too quickly to wind down the massive public spending programs they launched during the financial crisis.

Earlier Sunday, Harper’s chief spokesman admitted the negotiations on spending targets wouldn’t be easy.

“Nobody said that the task of G20 leaders agreeing to specific targets . . . is going to be easy. Nobody said that it also was going to be achieved,” Dimitri Soudas, Harper’s director of communications, told reporters in a briefing Sunday morning.

He noted it would be the first time that G20 leaders agree on quantifiable debt benchmarks with specific time frames since they met in Washington in fall 2008, at the peak of the financial crisis.

Harper estimated that co-ordinated action by the group could boost global output by a cumulative 6.5 per cent over the next five years, create 52 million new jobs and lift 90 million people out of poverty.

“But if we fail to take decisive, co-ordinated and balanced actions, a bleak scenario might emerge where millions of people could lose their jobs,” the prime minister said. “This is the responsibility we have, not only toward our constituents, but also toward all the citizens of the world. We must go on to lay the foundation for strong, sustainable and harmonious growth.

The leaders will also discuss the issue of how to “rebalance” the world economy so that countries with big trade surpluses, such as China, take steps to stimulate demand in their own countries. The United States, in particular, is expected to further press China to adopt a more flexible exchange rate.

Reforms to the global financial system will also be on the agenda. The European Union has been lobbying for the G20 to embrace a bank tax that would be used to fund any future bailouts, but Canada and other countries have argued that the way to prevent any further financial crises is to impose tougher capital and liquidity standards on banks.

Taking over as G20 summit host after the conclusion of the G8 summit on Saturday, Harper said a “sensible consensus” appeared to be emerging on both economic strategy and financial reforms.

Nonetheless, Harper acknowledged that there remain “tensions” within the group over how long governments should continue spending public funds to stimulate their economies.

“We all, I think, know what the critical issues are going forward,” said the prime minister.

“At the same time, we also know that there are tensions there that are real in terms of stimulus, in terms of effects on economic growth.”

At the height of the global financial crisis, the G20 demonstrated unprecedented co-operation on the need to lower interest rates and pump fiscal stimulus into the economy.

In turn, it supplanted the G8 as the premier political forum for dealing with economic matters. But as the crisis fades into the rear-view mirror, and as individual countries bounce back from the recession at different speeds, the group’s unity has begun to unravel.

Indeed, Canada’s belt-tightening message could yet be undermined by the United States, which is considering another round of stimulus spending to ensure it doesn’t fall back into recession.

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