G20 pledge to halve deficits by 2013

WORLD leaders yesterday endorsed a bold pledge by rich nations to slash budget deficits in half within three years despite US President Barack Obama’s concerns that cutting stimulus spending too quickly could stall the global recovery.

The deficit-cutting goal was outlined in a final statement from the top 20 industrial and developing nations at their weekend summit.

Canadian Prime Minister Stephen Harper, host of a summit, said it was critical that the countries “send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order”.

“Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilise or reduce government debt-to-GDP ratios by 2016,” according to the G20 statement.

The gross domestic product measures the value of all goods and services and is the broadest gauge of economic health.

The G20 includes the world’s major industrial countries – the US, Japan, Germany, France, Britain, Canada, Italy and Russia – plus major developing nations such as China, India, Brazil and South Korea.

The G20 conference, which followed two days of discussions among the older G8 attracted protesters unhappy with economic globalisation.

The deficit targets that the G20 countries adopted had been outlined by Harper in a letter he sent to fellow leaders this month.

Obama’s competing letter, favoured ongoing Government stimulus but country after country at the summit stressed the need to reduce deficits.

The G20 backed European Union plans to stress test major banks, to ensure they can withstand a surge in bad debt stemming from deficits in many European nations.

The G20 leaders pledged to reach agreement at their next summit in Seoul, South Korea, in November on new capital standards for banks.

The G20 statement stressed the responsibility of the banking sector to shoulder the cost of any repeat crisis.

Endorsement of a bank tax comes in spite of the opposition by a number of countries including Canada, Japan and Australia.

Britain last week announced a levy on bank profits from January 2011 to raise about $3 billion (€2.42bn) per year. France and Germany have also agreed to similar levies.