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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.

Obama Arrives in Toronto for Summit Meetings


Canada’s Prime Minister Stephen Harper (L) welcome U.S. President Barack Obama at the G8 Summit at the Deerhurst Resort in Huntsville, Ontario, June 25, 2010.

New York Times
June 25, 2010

TORONTO — President Obama arrived here Friday for back-to-back meetings of world leaders that will test international unity on how to restore global economic growth.

After landing, Mr. Obama quickly boarded a helicopter for a G-8 meeting in Muskoka, Ontario, about 100 miles to the north. Less than five hours before his arrival, Congressional negotiations reached agreement on sweeping legislation to overhaul the architecture of financial regulations, an accomplishment that gives momentum to his role at the meetings of the Group of 8 and the Group of 20 countries.

“We need to act in concert for a simple reason: This crisis proved, and events continue to affirm, that our national economies are inextricably linked,” Mr. Obama said on the White House lawn before leaving for Toronto.

The White House press secretary, Robert Gibbs, told reporters aboard Air Force One that the Unites States was “leading the world in dealing with the financial system.”

But the world’s richest countries find themselves divided on several areas that require global coordination, including proposals to tax giant banks and impose tougher capital and liquidity requirements on them.

Perhaps the biggest area of potential disagreement is when and how indebted countries, including the United States, should pull back the extraordinary spending programs they undertook to revive their economies.

In a letter last week, Mr. Obama cautioned that countries should not withdraw spending too quickly.

“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” he wrote.

But in an essay published Friday in The Globe and Mail, Britain’s new prime minister, David Cameron, argued that reining in deficits was essential to promoting economic growth.

“Of course, there must be the flexibility for countries to act, taking account of their own national circumstances,” Mr. Cameron, the Conservative leader of Britain’s first coalition government since 1945, wrote. “But I believe we must each start by setting out plans for getting our national finances under control.”

While the fiscal question has preoccupied discussion among economists, the Obama administration said this week that the United States and Europe were not in fundamental conflict.

A senior administration official said that American and German officials were largely on the same page about whether the global economy needed stimulus or deficit-cutting over the next year.

“Everybody is for growth,” the official said. Although German officials have been publicly emphasizing the steps they will eventually take to reduce their deficit, the actual cuts they will make in the near term are quite small, the official added; the United States is on course to reduce its deficit significantly faster than Germany in 2011 and 2012.

A crucial issue at the G20 will be whether Europe is pursuing structural reforms — like changing labor rules to make it easier to fire workers — that support the expansion of domestic demand, the official said.

The United States government reacted far more aggressively to the financial crisis than most Europeans governments, including Germany’s, did, according to International Monetary Fund data. The Europeans, for their part, say the United States, as the country where the financial crisis started, had more to do.

The United States will run a larger deficit than Germany in 2010 and 2011 — thus doing more to stimulate the economy than the Germans, economists say. But the United States is also withdrawing its stimulus at a more rapid rate than the Germans, I.M.F. numbers show.

The G-20 meeting that will begin here Saturday will also test the leaders’ resolve in reaching a consensus on new bank capital standards by November, when the G-20 leaders are to meet again in Seoul, South Korea.

Several of the G-20 countries have new leaders who will be encountering Mr. Obama for the first time. Along with Mr. Cameron, Japan’s new prime minister, Naoto Kan, and Australia’s, Julia Gillard, the first woman to occupy the position, will meet with Mr. Obama for the first time since taking office. Both Mr. Kan and Ms. Gillard took office this month, Ms. Gillard just this week.

Canada, Australia and Japan have expressed reservations about proposals supported by the United States and Europe for a global bank tax, but the recent changes in governments complicate that picture.

Kazuo Kodama, a spokesman for Japan’s Foreign Ministry, said here on Friday morning that “a one-size-fits-all approach may not be productive,” but said it was not accurate to characterize Japan’s new government as being opposed to a bank tax.

The G-8 leaders will meet in a lakeside lodge in the village of Huntsville. In meetings and over dinner, the G-8 leaders will discuss poverty alleviation — a topic that global relief organizations say has been largely neglected during the economic crisis. Mr. Obama will return to Toronto on Saturday.

Mr. Obama will have at least six one-on-one meetings with other leaders. But except for Mr. Cameron, all of the confirmed bilateral meetings so far are with Asian leaders — Mr. Kan of Japan, Hu Jintao of China, Manmohan Singh of India, Lee Myung-bak of South Korea and Susilo Bambang Yudhoyono of Indonesia — in a reflection of Asia’s role in leading the global economic recovery.