G20 agree to cut deficits by 2013

27/06/2010

EU welcomes agreement on a timetable for cutting budget deficits and reducing government debt.

Commission president José Manuel Barroso and Council president Herman Van Rompuy said the results of the summit in Toronto reflect “widespread convergence around Europe’s approach.”

G20 leaders pledged to halve their budget deficits by 2013 and to stabilise or reduce government debt by 2016. The strategy amounts to a reversal of the approach taken during the recession, when the G20 introduced spending programmes to shore up their economies.

In a joint statement, the leaders said sound public finances are essential to economic recovery, governments’ capacity to deal with new shocks and to meet the challenges of aging populations.

But they acknowledged that premature belt-tightening could hamper growth, agreeing on the need to follow through on existing stimulus programmes.

The eurozone debt crisis has convinced EU countries that now is the time to return to budget discipline. But this becomes more difficult if other leading economies do not also start phasing out stimulus spending.

The leaders also discussed but could not agree on a proposal for a global bank tax to cover the costs of repairing the financial system and winding down banks that go bust – an idea supported by the EU and the US but opposed by Canada, Australia and Brazil.

Instead they left the decision up to individual countries, conceding that a range of policy options exists for making the financial sector pay a "fair and substantial" contribution.

The EU may still push ahead with bank taxes but the levies are likely to be smaller as a result of the weekend’s decision, in order to avoid banks simply relocating to countries without the taxes.

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