G-20 agrees on deficits, differs on bank taxes

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G-20 agrees on deficits, differs on bank taxes


Leaders of the G-20 member nations wave during a group photo session in Toronto yesterday, joined by heads of international financial institutions, the EU, the United Nations, WTO, ILO and the OECD. They will all meet again in Seoul in November. They reached a difficult consensus on ending economic stimulative measures and trying to cut national budget deficits. By Cho Mun-gyu

TORONTO - The world’s 20 largest economies pledged yesterday, Korea time, to halve their deficits by 2013. But they failed to reach common ground on a global bank tax, leaving the matter up to each country to decide.

The leaders of the Group of 20, at their weekend summit, continued discussions on how to sustain the global recovery.

“Building on our achievements in addressing the global economic crisis, we have agreed on the next steps we should take to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth,” the leaders said in the G-20 Toronto Summit Declaration.

The highest priority of the G-20 economies, which comprise 85 percent of global gross national product, is “to safeguard and strengthen the recovery and lay the foundation for strong, sustainable and balanced growth, and strengthen our financial systems against risks.”

After two days of discussion, they agreed that “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.”

The member economies were still given room to maneuver their ways through the nonbinding deal. “We recognize that these measures will need to be implemented at the national level and will need to be tailored to individual country circumstances,” the declaration said.

While European members and Canada advocated spending cuts, the United States has been wary that fiscal contraction would bring about a double dip recession.

The G-20 Summit, first held in Washington in the wake of the global financial meltdown in November 2008, once saw some successful coordination of policies, but as the sense of urgency has faded with signs of recovery, differences among the major economies are emerging.

The latest G-20 Summit was the fourth to be held, and one sign of disagreement was the failure of the leaders to narrow their differences on the issue of a global bank tax.

“We agreed the financial sector should make a fair and substantial contribution towards paying for any burdens associated with government interventions, where they occur, to repair the financial system or fund resolution, and reduce risks from the financial system,” the declaration said. “We recognized that there are a range of policy approaches to this end. Some countries are pursuing a financial levy. Other countries are pursuing different approaches.”

The U.S. and U.K. governments support the idea, while Canada, Australia and several big emerging economies oppose it.

The leaders also promoted “greater exchange rate flexibility in some emerging markets,” without naming China, which has faced growing pressure to appreciate its currency.

As this year’s G-20 chair country, South Korea tried to play a role as a consensus builder, Korean officials said. According to Blue House spokeswoman Kim Eun-hye, President Lee Myung-bak’s proposals made at the summit were effectively reflected in the final agreement.

Promoting “growth friendly” fiscal contraction, Lee’s suggestion of “tailored” action for individual countries was incorporated in the declaration, Kim said.

Lee also promoted new agenda issues to be addressed at the November summit in Seoul, including balanced development and establishment of global financial safety nets, and both issues were contained in the declaration.

“Narrowing the development gap and reducing poverty are integral to our broader objective of achieving strong, sustainable and balanced growth and ensuring a more robust and resilient global economy for all,” the declaration said. “In this regard, we agree to establish a Working Group on Development and mandate it to elaborate, consistent with the G-20’s focus on measures to promote economic growth and resilience, a development agenda and multi-year action plans to be adopted at the Seoul Summit.”

The leaders also agreed to direct their finance ministers and central bank governors “to prepare policy options to strengthen global financial safety nets for our consideration at the Seoul Summit,” adding that their goal is to build “a more stable and resilient international monetary system.”

By Ser Myo-ja [myoja@joongang.co.kr]
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