The G20 summoned a new age of austerity that will see governments cut hundreds of billions of dollars in public spending in an unprecedented moment of co-ordinated belt-tightening.
If they don't balk, the world's wealthy nations will embark on a harsh round of deficit-cutting during the next three years that will see their citizens confront cuts to public services and entitlements such as pensions, or tax hikes. The end result made clear that fears of national-debt crisis roiling financial markets beat out concerns – raised by the United States, India, Brazil, and Argentina – that cutting spending could tilt the global economy back into recession. There was underlying fear that failing to make progress in cleaning up public finances could leave countries unable to respond to another global economic crisis.
The G20 summit, summoned to life two years ago to launch stimulus-spending plans to stave off an economic depression, set targets for debt-laden wealthy nations to halve their deficits in three years and tame growth of their debt loads by 2016. Meeting those goals will be a key test of the group's credibility, though even as Prime Minister Stephen Harper announced the agreed targets, it was clear some members of the G20 did not see them as mandatory.
None face sanctions for missing them, and French President Nicolas Sarkozy said they are goals, and “not a collective order from the G20.”
Mr. Harper insisted each nation's credibility rests on meeting the targets, and that financial markets will punish them if they don't. “I'm confident that all countries that made these commitments will fulfill them – and they will need to fulfill them,” he told reporters.
The G20 didn't really resolve short-term differences over how fast each country should cut, so that quick cutbacks in unison don't cause a double-dip recession. And it didn't produce clear steps on getting emerging nations to set policies to increase spending by their own citizens. China, for example, successfully pressed to have a reference to its pledge to allow its currency to rise be removed from the communiqué.
But for Mr. Harper, the adoption of the targets, pushed by Canada in weeks of preparations for the summit, was a victory – one that enshrined his call for world leaders to calm markets spooked by Greece's near-meltdown with mid-term plans for deficit reduction. The strongest objector, Japan, saddled with debts double its annual economic output, was given a sort of pass, pledging to halve its deficits two years later, in 2015.
The Prime Minister also won, as expected, a victory in his fight against a global bank tax, as the G20 agreed nations would each decide their own policy.
