The highly anticipated gathering of G20 leaders in Toronto this month is fast becoming the Austerity Summit.
As Europe's debt woes roil financial markets day after day - and amid widening concerns that the crisis could send the still fragile global economy into a new tailspin - world leaders are shifting their focus to controlling ballooning deficits rung up by governments to fight the recession.
As a result, such key issues as financial reform, climate change and poverty in the developing world could get shorter shrift when the leaders meet in the Ontario capital on June 26 and 27. Further stimulus spending will not even be on the table.
"It's the No. 1 issue of the G20," Finance Minister Jim Flaherty said Monday, of the need for countries to find ways to deal with their spending and debt problems. "What's going on in Europe is not an academic exercise."
Governments across Europe are already adopting a new mantra of austerity and are pushing ahead with plans to either slash spending or raise taxes, or both, in an effort to get their battered fiscal houses in order.
There is a risk that pulling the plug on unprecedented stimulus measures launched in the wake of the global credit crunch in 2008 will send their economies reeling again. But this is outweighed by a stark loss of investor confidence - and the growing threat of costly credit downgrades - that has sent bonds and equities reeling and driven the euro to fresh lows against other major currencies.
British Prime Minister David Cameron warned Britons Monday that they face heavy cuts in public spending and years of tough budgets, as the new coalition government wrestles with deteriorating public finances. "The overall scale of the problem is even worse than we thought," Mr. Cameron said in a speech north of London. "How we deal with these things will affect our economy, our society, indeed our whole way of life."
German Chancellor Angela Merkel unveiled €82-billion worth of tax increases and reductions in spending and subsidies over the next four years and urged other leaders to follow the example.
Ms. Merkel's cuts will effectively reduce growth in the German economy to zero, Carl Weinberg, chief economist with High Frequency Economics in Valhalla, N.Y., told clients on Monday.
How much growth is Germany prepared to sacrifice over the next two years in the name of fiscal balance? Mr. Weinberg asked. "Our calculations suggest a three-word answer … all of it."
The move came as euro-zone finance ministers put the final touches on a €440-billion fund designed to assist Spain, Portugal and other debt-ridden members of the common currency union.
That financial safety net is a key weapon in the arsenal developed to defend the sagging euro, but so far international investors have been unimpressed. The euro has dropped below $1.20 (U.S.) for the first time in four years.
All economies, including Canada, must begin curbing stimulus spending and tackling their significant debts, Mr. Flaherty said in remarks to an International Corporate Governance Network conference in Toronto.
The European finance ministers assessed the austerity plans announced by Spain and Portugal and glumly concluded that the proposed spending cuts will not be nearly enough.
"More needs to be done and I can only encourage both countries to pursue structural reforms, for instance in labour market and banking reforms," said Olli Rehn, the European Union's economic and monetary affairs commissioner.
The International Monetary Fund, which will contribute an additional €250-billion to the euro-zone safety net, added its voice Monday to the growing chorus calling for major structural reforms and more centralized control of government finances, which the individual countries sharing the common currency have bitterly opposed.
If vulnerable countries in Europe fail to resolve to reduce deficits, the resulting instability could hurt the economic recovery around the world, Mr. Flaherty said. "I think it's clear there's a risk to growth arising out of the European situation."
On the heated subject of a global bank tax, Mr. Flaherty said the best answer is for each country to implement its own preferred solution after first agreeing on the general goals to be achieved.
Canada has consistently rejected calls to impose a new global bank tax to build up funds to assist banks in crisis. Mr. Flaherty reiterated his view that Canadian banks did not need a bailout in the recent crisis and should not be taxed now, arguing any tax will be passed along as higher fees for customers.
"The majority of G20 countries agree with Canada's position that a bank tax is not appropriate," he added.
He said he fears countries that adopt a bank tax will end up spending the gains immediately to reduce their ballooning deficits, instead of properly using them to build a reserve fund.
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