Toronto: Group of 20 leaders are poised to endorse targets to tackle deficits while giving nations flexibility on when to start balancing their books, according to officials with knowledge of drafts of the final statement.
Leaders were to agree yesterday on the need to cut deficits, while urging countries with the most precarious fiscal positions to accelerate their plans, according to the officials who declined to be identified by name because a final version of the statement hasn't been completed.
The G20 has to bridge a gap between leaders such as President Barack Obama who want to focus on growth and officials such as German Chancellor Angela Merkel who favour budget cuts.
"Discussions in the G8 have shown that it is possible to reconcile some conceptual differences," European Commission President Jose Barroso told reporters in Toronto on Saturday. "We expect the G20 to agree on concrete targets for deficit reduction and the stabilisation and reduction of debt."
The draft of the statement includes targets championed by Canadian Prime Minister Stephen Harper for countries to halve deficits by 2013 and start to stabilise their debt-to-output ratios by 2016, the officials said. Some countries, such as Brazil, are resisting the inclusion of those specific deadlines.
"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 officials said the G20 statement was to echo an agreement reached by finance chiefs in Busan, South Korea, earlier this month.
The agreement would effectively endorse the austerity plan set out by the UK, which has the highest deficit in the group, while acknowledging US concerns that countries shouldn't be required to start cutting public spending until their own recoveries are fully entrenched. The G20 will call also on countries with current account surpluses, such as Germany and China, to increase sustainable economic growth, the official added.
Speed and timing
"The speed and timing" of fiscal consolidation "must be tailored to national circumstances, so we do not derail the recovery under way," Australian Deputy Prime Minister Wayne Swan told a business audience in Toronto.
The G20, which accounts for about 85 per cent of the global economy, 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 amid differences in prosperity that vary from the US's $46,400 (Dh170,385) in GDP per capita to India's $3,100.
The leaders may opt to include fewer specifics in their final statement. On Saturday, they emphasised areas of accord in their fiscal policies, with Obama saying he and UK Prime Minister David Cameron are "aiming at the same direction." French President Nicolas Sarkozy said he saw no "clash" between countries on the issue, and Harper called it a "balancing act."
"As recovery takes hold at different rates around the world and as domestic political pressures figure more prominently than the threat of a global meltdown, one can expect these declarations to become increasingly general," said Dan Price, who served as former president George W. Bush's G20 negotiator.
Leading the charge
European nations have led the charge on the deficits. Merkel said in an interview with ZDF television that she lobbied her counterparts at the G8 meeting to pursue "solid" fiscal policies and defended her own plan to reduce Germany's budget deficit by about 10 billion euros (Dh45.4 billion).
US Treasuries are having their best year since 1995, returning 5 percent through June 24, according to Bank of America Merrill Lynch index data, as investors seek alternatives to Europe, where Greece and Spain had their credit ratings downgraded.
"European countries just had a near-death experience over Greece," said Tony Fratto, a former Treasury and White House official under Bush. "Some are afraid of suffering the same fate."
US Treasury Secretary Timothy Geithner urged G20 leaders to focus on growth. The world economy is still emerging from the "fires of the crisis" and "the scars of this crisis are still with us" he said in prepared remarks for a press conference.
"We're aiming at the same target, which is world growth and stability," Cameron told reporters as he met with Obama in Toronto. "But it means those countries that have big deficit problems like ours" have to take "action in order to keep that level of confidence in the economy."
Obama agreed that rising debt is an issue.
"We have long-term deficits that have to be dealt with," Obama said. "There are going to be differentiated responses between the two countries because of our different positions, but we are aiming at the same direction."
Outside the security zone that surrounds the meeting forum, 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.
