G20 leaders agree to halve budget deficits by 2013

Divisions remain over global financial levies and how quickly to withdraw economic stimulus.

Leaders from the G20 group of developing and developed nations agreed to halve their budget deficits by 2013 at the end of their two-day summit talks in Toronto, but failed to make progress on imposing a global system of levies and taxes on financial institutions.

The meeting’s final communiqué issued Sunday (27 June) reflected divisions among G20 members over how quickly governments should withdraw economic stimulus measures that they introduced to tackle the financial crisis.

The statement adopted by the G20 nations said that they would take a “differentiated and tailored” approach to getting out of the economic crisis.

Most EU member states have introduced budget cuts to bring down deficits and debts to stabilise the euro in wake of the Greek debt crisis, which weakened market confidence in the eurozone.

Disagreement

US President Barack Obama, however, has expressed disagreement with the EU approach, arguing that cutting too much government spending now could put at risk economic recovery.

José Manuel Barroso, president of the European Commission, and Herman Van Rompuy, the president of the European Council, both of whom represented the 27-nation EU at the summit said the Union’s approach “in favour of stabilisation” was “widely welcomed” at the meeting.

The G20 leaders agreed that the group’s richest members would commit to plans “that will at least halve deficits by 2013 and stabilise or reduce government debt to gross domestic product ratios by 2016”.

Financial levies

A push by EU leaders on applying global levies on national banking sectors was met with resistance from Japan, India, Canada and Australia. The leaders of the UK, France and Germany, along with Barroso and Van Rompuy, said that the EU would go ahead and introduce their own levies on financial institutions despite the failure to get other countries on board. The US is also drafting legislation to impose levies on such transactions.

EU member states are pushing for the taxes and levies to fund future bail-outs of banks, arguing that the financial sector should have to shoulder part of the costs of any future aid.

The Financial Stability Board, which was asked by the G20 to co-ordinate financial regulatory reforms, said such levies should not be seen as an alternative to imposing new regulations on bank capital and liquidity to prevent a future banking crisis.

On financial regulation, G20 leaders said that they would stick to a 2012 timetable to put in place new banking standards on capital and liquidity.

The leaders also committed to keep protectionist trade policies in check for three years and renewed their pledge to restart stalled negotiations on a global trade deal, but dropped an earlier goal of completing such an accord this year.