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Stephen Harper and Barack Obama wave as members of the summit pose for photoAdrian Wyld

The Group of 20 will adopt deficit- and debt-cutting targets proposed by Prime Minister Stephen Harper but allow governments to attack their fiscal gaps as their own economic dynamics dictate.

G20 leaders pledge to "take all necessary steps ... fully within agreed timelines," according to a leaked draft of the summit communiqué.

G20 Communiqué

"Measures will need to be implemented at the national level and will need to be tailored to individual country circumstances," the document says. "We will each identify additional measures, as necessary, that we will take toward achieving strong, sustainable, and balanced growth.''

The communiqué adds that "advanced economies" commit to the targets urged by Mr. Harper, to cut deficits in half by 2013 and "stabilize or reduce" overall debt-to-GDP levels by 2016.

"We are committed to taking concerted actions to sustain the recovery, create jobs and to achieve stronger, more sustainable and more balanced growth," it says. "These will be differentiated and tailored to national circumstances."

The more immediate targets would be ambitious for many countries. For example, Japan's current fiscal strategy seeks to halve the deficit relative to gross domestic product by fiscal 2015, and to achieve a surplus by 2020.





"Honestly, this is more than I expected, because it is quite specific," said Germany Chancellor Angela Merkel. "It's a success that industrialized countries as a group accepted this."



John Kirton, who heads the G20 research group at the University of Toronto, said initial indications about what will be in the communiqué suggest the summit has been a success both for Mr. Harper and for the global economy.

"The communiqué of the G20 opens with a strong message that we need to put growth and jobs first, which is important for Canadians with an 8-plus-per cent unemployment rate and is consistent with the Prime Minister's strategy that we continue to stimulate and only start to exit fiscal policy next year, but it really is a big hand up to our friends in the United States, who are struggling badly on the growth and jobs fronts," he said.

"Some have described this as a stock-taking summit, and that may have been true six weeks ago. But we had a brand new global financial crisis blow-up starting in Europe, so the place is here, the time is now to stop that crisis and keep global growth going and to keep the financial reform agenda on track.''

Mr. Harper opened the second day of talks by saying the summit must strike the proper balance between sustaining economic growth and pulling back fiscal deficits.

"Here is the tightrope we must walk," Mr. Harper said. "To sustain the recovery, it is imperative that we follow through on existing stimulus plans. At the same time, advanced countries must send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order."





The communiqué lays out just how fragile policy makers believe the global turnaround remains, warning unemployment in many countries is at "unacceptable'' levels and the "social impact of the crisis'' is still being felt widely. It emphasizes the balancing act many leaders face as they try to bolster confidence and sustain private demand by trimming their debt.

"There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery,'' it says. "There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth.''

The communiqué endorses moves already taken to help smooth out gaps in global growth. However, unlike an earlier version obtained by The Globe and Mail, it did not mention anything about China's recent pledge to revalue its currency over time. According to reports, the wording was removed at the request of Chinese officials.

"Among more recent measures, we particularly welcome the full implementation of [the European rescue plan to backstop countries struggling with crippling debt loads] the EU decision to publicly release the results of ongoing tests on European banks; and the recent announcements of fiscal consolidation plans and targets by a number of G-20 countries. These represent substantial contributions to our collective well-being and build on our previous actions. We will continue to co-operate and undertake appropriate actions to bolster economic growth and foster a strong and lasting recovery."

While it doesn't name China, the communiqué does say leaders agreed there's a need for "increasing exchange rate flexibility in some emerging markets."

The communiqué also confirms that the leaders agree to disagree rather than push for a new global bank tax. At the same time, the document states that the financial industry, rather than taxpayers, should bear the burden of future crises that are of the sector's making.

"We agreed the financial sector should make a fair and substantial contribution towards paying for any burdens associated with government interventions, where they occur, to repair the financial system,'' the document says.

"There are a range of policy approaches to this end. Some countries are pursuing a financial levy. Other countries are pursuing different approaches.''

The document also suggests that certain emerging-market economies also will be pushed to improve their social safety nets in order to encourage more domestic spending.

Leaders also pledged to strive to reach agreement by the next summit in Seoul in November on new standards for the amount and quality of capital banks must hold in reserve to cushion themselves and the wider financial sector from disastrous shocks.

"Substantial progress has been made on reforms that will materially raise levels of resilience of our banking systems,'' the document says. "This will enable banks to withstand - without extraordinary government support - stresses of a magnitude associated with the recent financial crisis.''

However, Canadian banks - whose capital and leverage standards are among the highest in the world - are unlikely to be pleased with the communiqué's language saying the new standards would be phased in based on "different national starting points and circumstances.'' Canadian banks have argued that they would be disadvantaged should weaker financial institutions in Europe have more time to adapt to new rules.





Dimitri Soudas, a spokesman for Mr. Harper, said the summit has demonstrated that leaders are able to make the right decisions for the global economy whatever their own circumstances. "But let me be clear," he said, "nobody ever said that agreeing to these targets was going to be an easy negotiation, was going to be an easy discussion.''

It was unclear exactly how the China currency reference ended up being dropped, but on Saturday, senior Chinese officials at the G20 gathering said just before President Hu Jintao met with U.S. President Barack Obama that they will consider their own economic needs before making further exchange rate moves, and won't capitulate to outside pressure.

Andrei Bokarev, Russia's deputy sherpa and a finance ministry official, said Sunday most Group of 20 members welcomed China's plans to adopt a more flexible yuan but any reference to it was removed, at China's request, from the communiqué to be published at the end of the meeting.

"The majority of the members of the G20 welcomed the plans of the government of China on introducing a floating yuan rate," Mr. Bokarev told reporters, "But in the final communiqué this phrase will not be in there at the request of the Chinese side."

Mr. Obama and several key lawmakers in Washington contend that China's artificially low currency gives its exporters an unfair advantage at the expense of U.S. manufacturers, and Canada argues that the weak yuan means the Canadian dollar is disproportionately boosted when the U.S. dollar drops.

Asked whether the issue came up at a leaders' dinner Saturday night, Tiff Macklem, the Finance Department's point man at international summits who will become senior deputy governor of the Bank of Canada on July 1, was vague in his response.

"The highest priority of this summit is to safeguard and strengthen the recovery and then lay the foundation for ongoing durable and sustained balanced growth,'' he said. "All G20 countries have responsibility to take actions to move us forward on that agenda.''

Mr. Macklem expanded on the point, saying that "one of the points of these summits is for all G20 countries to put some pressure on each other, to take the collective actions necessary to achieve our shared objectives.''

In large part because of the European debt crisis and the market volatility it fuelled, debate in the past week or so has centred on the urgent problem of how to make up for massive budget shortfalls while many economies and the worldwide rebound remain fragile.

"This meeting is coming at a critical juncture,'' said Mr. Macklem. "There is a risk that failure to communicate, commit and move forward on credible fiscal consolidation plans could undermine the recovery. There's also a risk that if there's a very rapid, synchronized fiscal consolidation across many G20 countries, that could adversely impact the recovery. It will be very important for leaders to have this discussion on finding that balance and the best way to convey the message going forward.''

With a file from Reuters.

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