G20 leaders set to agree economic way forward

Leaders of the G20 group of major economies are today expected to agree a way forward for nursing the global economy into recovery on the final day of their two-day summit in Toronto.

Pre-summit expectations of a clash between European states implementing austerity programmes to pay down debts and US President Barack Obama, who wants continued fiscal stimulus to avoid a return to recession, have been smoothed over, with both sides agreeing that different approaches are appropriate in different countries.

The summit is drawing to a close amid tight security, following violence at protests in the streets of Toronto last night.

Today’s communique is expected to commit the G20 countries to work together towards strong, sustainable and balanced growth, but to recognise that each will have a different contribution to make to the process.

The agreement gives the international stamp of approval to British Prime Minister David Cameron’s decision to impose sharp reductions in state spending and increase taxes in order to deliver a swift reduction in the UK’s record state deficit.

After a one-on-one bilateral meeting with Mr Cameron in Toronto yesterday, the President made clear he accepts that the UK will not necessarily follow the same path as the US to balancing its books.

“There are going to be differentiated responses between the two countries because of our different positions, but we are aiming at the same direction, which is long-term sustainable growth that enables people to work,” said Mr Obama.

And Mr Cameron agreed: “We are aiming at the same target, which is world growth and stability, but those countries with big deficits like ours have to take action in order to keep that level of confidence in the economy which is absolutely vital for growth.”

All the G20 countries submitted information about their economic policies and forecasts for growth, trade and the state of their books to the IMF at the start of the year as part of a process to co-ordinate the international effort to secure the recovery.

The IMF is understood to have divided countries into four groups in an explicit recognition that different policy responses will be needed in states with high debt levels, like the UK, and others with trade surpluses and the potential for a big boost to domestic demand, like China.

In this context, the G20 is likely to welcome Beijing’s recent announcement that it will allow the yuan to float, which may make foreign goods and services more competitive in the far Eastern giant.

Canadian opposition looks set to stymie any progress on a global tax on banks, though several members of the G20 – including the UK – are introducing their own levies as a means of ensuring financial institutions cover part of the cost of the sector’s bailout.

Today’s communique is also likely to send a message in support of new rules requiring banks to hold sufficient high-quality capital to enable them to withstand shocks of the kind seen in 2008 without asking for taxpayer support.

However, no formal agreement on these measures is expected until the end of the year.