Leaders of the world’s largest economies were set to paper over their differences on the speed of deficit reduction on Sunday, calling for policies that simultaneously fostered growth and lower government borrowing.
A leaked draft of the Group of 20 communique maintained the recent shift towards more rapid deficit reduction, but said this policiy should be “tailored to national circumstances”.
The diplomatic language will satisfy all G20 countries and it has prevented a row breaking out at the summit in Toronto this weekend even though differences still exit on the strategy for global economic recovery.
The G20 appears set to recognise that there are risks regarding sovereign deficits and debt whatever countries choose to do, and hopes that countries will follow “growth friendly fiscal consolidation plans”.
“There is a risk that synchronised fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that failure to implement consolidation where necessary would undermine confidence and hamper growth,” the draft communiqué says.
G20 countries are set to pledge to halve their budget deficits by 2013 and stabilise their debt to national income ratios by 2016, the first time the body has included specific targets for deficit reduction in its statements. But these targets are not likely to require new policy action because G20 countries are already planning austerity measures on this scale, according to the recent International Monetary Fund fiscal monitor.
Senior G20 sources also said the target would not be binding and no sanctions would apply if countries failed to get borrowing down that quickly. But they hoped it would send a signal to financial markets that the global community was serious about reducing sovereign debt risks.
Japan, which finances its large and persistent borrowing from domestic sources, has been spared the target. The draft communiqué says: “Recogniing the unique circumstances of Japan, we welcome the Japanese government’s fiscal consolidation plan announced recently with their growth strategy”.
Get alerts on Global Economy when a new story is published