Group of 20 governments disagreed over the strength of new fiscal goals as they risk missing the targets set three years ago.
After committing at a Toronto summit in 2010 to halve budget deficits by this year, most advanced nations are now facing failure on that score and on a related pledge to stabilize their debt by 2016.
As G-20 finance chiefs meet in Moscow, the challenge now is to find a replacement for the Toronto goals after weak economic growth hamstrung fiscal consolidation worldwide. While German Finance Minister Wolfgang Schaeuble advocated “concrete” targets, Russian official Ksenia Yudaeva said formal commitments would be “counterproductive.”
“We might want to have long-term principles and particular strategies for countries with high deficit levels,” Yudaeva, Russia’s G-20 sherpa, said in an interview. “But I don’t think we need any precise commitments like during Toronto. It should be much more flexible.”
The G-20 will discuss adopting a new deadline for deficit goals and may set 2016 as the new target date, Russian Finance Minister Anton Siluanov said today. Given the debt burden of industrial nations, “a credible path of debt reduction is really essential and the positive environment should be used by the G-20 countries,” Schaeuble said.
Assessing the appropriate stance of fiscal policy has caused rifts between the major economies since the global financial crisis began in 2007. It’s pitted the U.S., whose officials have preferred to focus on boosting economic growth in the short term, against a European push for immediate austerity measures.
U.S. Treasury Undersecretary Lael Brainard said in Moscow today that the priority for the G-20 in its talks should be to find ways to strengthen economic expansion and that fiscal adjustments should be calibrated.
Recovery has proved much slower than anticipated in Toronto, said Organization for Economic Cooperation and Development Secretary General Angel Gurria said in Moscow.
“Because growth has been weaker than the context in which we launched the Toronto agreements, we obviously need the flexibility,” he said today. “If you are getting more expense and less revenue it means that you probably need some more time.”
The European fiscal stance remains “very restrictive,” leaving room for easing as the region’s debt crisis ebbs, Brazilian Finance Minister Guido Mantega said.
The finance chiefs already watered down their Toronto agreement after November talks in Mexico City, saying they would ensure “the pace of fiscal consolidation is appropriate to support recovery.”
In a draft of their latest communique dated Feb. 11 and obtained by Bloomberg News yesterday, the G-20 officials said “credible medium-term fiscal plans need to be put in place to provide flexibility in the near-term pace of fiscal consolidation in line with economic conditions.”
“Our overriding priority must be to support growth and jobs and to cement a sustained global recovery,” Australian Treasurer Wayne Swan said. “Of course, all governments must all put in place responsible medium-term budget frameworks to ensure the sustainability of their finances over time.”
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