THE GROUP of 20 developed and emerging nations (G20) has agreed a target for cutting deficits and for improving capital requirements for banks in an attempt to bring stability to the global economy.
The advanced economies aim to at least halve deficits by 2013 and stabilise their debt-to-output ratios by 2016.
However, the leaders, at the end of a weekend meeting in Toronto that was marred by violence from protesters, decided against a one-size-fits-all prescription for the world’s major economies.
The leaders are trying to reduce budget deficits without stunting growth, and curb risky bank behaviour, without choking-off lending.
“Here’s the tightrope that we must walk,” Canadian prime minister Stephen Harper said at the start of meeting.
“To sustain recovery it is imperative that 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.”
The higher capital requirements for banks are aimed at ensuring they are strong enough to withstand future shocks without taxpayer bailouts.
The banks are to be given a few years to work on the size and quality of their capital.
The G20 leaders also worked to show progress on a promise made in September to rebalance the global economy.
They want export-reliant nations such as China and Germany to look inward for growth and indebted countries, including the United States, to change their borrow-and-spend ways.
Emerging market economies pledged to take measures to strengthen social safety nets, increase infrastructure spending and enhance exchange rate flexibility.
The meeting had to bridge a gap between leaders such as US president Barack Obama, who wants to focus on growth, and others, such as German chancellor Angela Merkel, who favour budget cuts.
The statement at the end of the meeting said the global recovery, which has been faster than expected, remains fragile and uneven.
“The world economy is gradually recovering, but the foundations of the recovery are still not solid, the process is not balanced and there are still many uncertainties,” said China’s president Hu Jintao.
Efforts to rein in deficits and sustain the recovery will be differentiated and tailored to national circumstances.
Countries such as Brazil opposed specific deficit targets, saying it would be hard for some G20 members to meet them without stifling economic growth.
“It is draconian, a little difficult, a little exaggerated,” said Brazilian finance minister Guido Mantega. “Some countries would not be able to do it. It is clear that a cut is needed, but at what velocity? It can’t be too fast.”
The agreement effectively endorsed Britain’s austerity plan, while acknowledging US concerns that countries shouldn’t be required to start cutting public spending until their own recoveries are fully entrenched.
“There is a risk that synchronised fiscal adjustment across several major economies could adversely impact the recovery,” the statement said.
The G20 accounts for about 85 per cent of the global economy. It replaced the G8 last year as the world’s foremost international policy-coordinating forum.
The larger group means developed and emerging economies are trying to find common ground.
European nations led the charge on the deficits. Dr Merkel said in an interview with German television network ZDF that she lobbied for “solid” fiscal policies and defended her own plan to reduce Germany’s budget deficit by about €10 billion per year.
The G20 statement called for “a single set of high quality” accounting standards and executive pay rules. The leaders agreed at the summit on the need to improve oversight of hedge funds, credit rating companies and over-the-counter derivatives “in an internationally consistent and non-discriminatory way”.
Outside the security zone that surrounds the meeting, protests turned violent as thousands of demonstrators marched through central Toronto.
Protesters set fire to cars; others threw rocks at the windows of First Canadian Place, headquarters of the Bank of Montreal, and spray-painted “Bomb the banks” on the building. Toronto police said they had made 584 arrests yesterday. – (Bloomberg, Reuters)