A Greek man takes lunch in a resaurant in Athens on May 10, 2010. Major protests are expected against the reform of the pensions system due to be outlined by the government later on Monday that could see retiree payments in Greece cut by up to 20 percent.DIMITAR DILKOFF
Annie Wang, an 18-year-old from Aurora, Ont. who I assume, since it's mid-May, is about to finish up her first year of the commerce program at Queen's University, wrote to ask if the G8/G20 blog could mention the National Youth Ambassador Caucus in Ottawa, which starts Saturday and runs through to May 19.
According to the press release that Ms. Wang sent, she and 99 other young Canadians will attend the event, which is a joint project of Global Vision, Canada's international affairs department and the Federal Economic Development Agency of Southern Ontario. Participants will debate issues related to the Group of Eight and Group of 20 summits, including maternal health, food security and nuclear proliferation; vie for one of 26 spots to attend the summits in person; and mingle with some politicians, including Prime Minister Stephen Harper.
OK Annie, I'll mention the National Youth Ambassador Caucus in Ottawa May 15 to 19. But in doing so, I'll suggest a question you might ask the G8 and G20 summit chairman since you stand a far greater chance of talking to him than I do: Sir, are you willing to make your generation, my generation, and future generations work longer than we do now before retirement so that we might put this financial crisis behind us?
The International Monetary Fund published a report Friday that shows that debt in developed countries is on track to expand to 110 per cent of their combined gross domestic product by 2015 from 73 per cent in 2007. In the Group of Seven major industrial economies, debt levels in about five years will be higher than they were after the Second World War.
"As economic conditions improve, the attention of policy makers should now turn to ensuring that doubts about fiscal solvency do not become the cause of a new loss of confidence: recent developments in Europe have clearly indicated that this risk cannot be ignored," the IMF said. "Major fiscal consolidation will be needed over the years ahead."
Major means enough to make a serious dent in those debt loads. Simply stabilizing debt at current levels won't strengthen economic growth because longer term costs such as retirement and health care -- problems before the financial crisis and global recession -- will continue to rise. That means investors will demand more to lend countries money.
If developed economies choose only to stabilize debt at its 2015 level, long-term interest rates may climb by 2 percentage points and potential growth may be 0.5 percentage point lower annually, the IMF said.
However galling, the bond traders have the upper hand right now. The euro was trading at its lowest since the collapse of Lehman Brothers Holdings Inc. and stock markets are down because investors have grown extremely worried that Europe's debt crisis will weigh heavily on the prospects for global economic growth. The $1-trillion (U.S.) backstop European governments and the IMF assembled last weekend stopped a panic, but fundamental risks remain.
Unlike climate change, there is no question about whether this subject is on the agenda at the G20 summit. Leaders pledged to keep a close eye on how the global economy evolved after their unprecedented stimulus measures reversed the recession, and Mr. Harper said last weekend that the troubles in Greece and other European nations shows the necessity of devoting some significant time to exit strategies.
One of the reasons the bond traders are wary is that so far G20 exit strategies, if they exist at all, are almost universally unconvincing.
While some countries, including Canada and Australia, have laid out plans to get their budget deficits under control, few have said what they are going to do to reign in rising health and pension costs. The IMF report includes a chart of what each of the 19 national governments is doing to control health and retirement costs. If countries are doing anything on either issue, it tends to be planning and talking and assessing. The most concrete measure belongs to Australia, which intends to raise the retirement age to 67 from 65. Nine countries are doing nothing at all on healthcare costs, not even discussing it, according to the IMF. On retirement, which is the easier problem of the two, 12 countries are doing nothing.
And you wonder why bond traders question whether governments are serious about paying their bills?
So far, the G20 has stressed the importance of "credible" exit strategies. Given the continued stress in financial markets, it might be time to do more.
The IMF thinks more should come in the form of concerted movement on dealing with health and retirement costs, which everyone knows are going to rise as populations age.
Speaking at a press conference in Washington Friday, Carlo Cottarelli, the director of the IMF's fiscal affairs department, suggested a simple policy change that would freeze pension costs in their tracks: raise the retirement age by two years, as Australia plans to do. This would be sufficient to stabilize pension spending as a share of GDP at its 2010 level by 2030, according to Mr. Cottarelli's analysis.
"Increasing the retirement age doesn't hurt aggregate demand," said Mr. Cottarelli. "There is no need to delay this to the future."
A G20 endorsement of a higher retirement age wouldn't solve the advanced countries' debt crisis. But it would represent that sort of concrete action that could persuade investors to accept lower yields. That would buy Mr. Harper and other leaders time to figure out what they want to do about healthcare, a debate that surely will involve their countries' youth.