G20 Summit Vows Stringent Financial Reforms

Arthi Gupta
28 Jun, 2010
New York City

Leaders of the G20 countries agreed to cut government debt at the group''s summit in Toronto, Canada. Leaders of largest economies announced they would cut deficits in half by 2013 and stabilize their debt-to-GDP ratios by 2016.

[R]10:45 AM New York – Leaders of the G20 countries agreed to cut government debt at the group''s summit in Toronto, Canada. Leaders of largest economies announced they would cut deficits in half by 2013 and stabilize their debt-to-GDP ratios by 2016.[/R]

The fourth Group of 20 summit concluded after leaders of major economies agreed on a set of targets of fiscal consolidation and measures to ensure a strong, sustainable and balanced growth.

The aggregate debt of advanced countries within the G20 is estimated to hit 107.7% of GDP this year.

""Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016,"" said the G20 Toronto Summit Declaration which was issued on Sunday.

The declaration said advanced deficit countries should boost national savings while surplus economies will undertake reforms to reduce their reliance on external demand.

The group of 20 leading and emerging nations had been split over the pace of budget cuts. U.S. President Barack Obama warned against fast and deep budget cuts, fearing damage to global growth.

But European members, including the UK, France, and Germany, have already led moves to slash record public deficits which is expected to run a $1.3 trillion deficit in 2010.

Emerging economies such as Argentina and Brazil had worried that budget cuts in rich countries would hurt their export-dependent economies.

""If the cuts take place in advanced countries it is worse,"" said Brazilian Finance Minister Guido Mantega. ""Because instead of stimulating growth they pay more attention to fiscal adjustments, and if they are exporters they will be reforming at our cost.""

Leaders at this summit were compelled to craft a compromise between austerity and spending. Earlier this year, sovereign debt problems in Greece rattled the markets and drove up borrowing costs in the euro area. The focus in Europe therefore shifted to pacifying the bond markets via the swift adoption of austerity measures.

The G20 threw support behind a special tax on banks, stating that the ""financial sector should make a fair and substantial contribution toward paying any burdens associated with government intervention, where they occur, to repair the financial system or fund resolution.""