Published April 19, 2013
Finance leaders of the G20 economies on Friday edged away from a long-running drive toward government austerity in rich nations, rejecting the idea of setting hard targets for reducing national debt in a sign of worry over a sluggish global recovery.
The G20 club of advanced and emerging economies also said it would be watching for negative effects from massive monetary stimulus efforts, such as Japan's - a nod to concerns of developing nations that those policies risked flooding their economies with hot capital and driving up their currencies.
Russian Finance Minister Anton Siluanov said at a news conference that officials from the Group of 20 nations believed overall debt reduction was more important than specific figures.
"We agreed that these would be soft parameters, these would be some kind of strategic objectives and goals which might be amended or adjusted, depending on the specific situations in the national economies," he said.
Russia - this year's G20 chair - had hoped to secure an agreement on setting fixed targets for reducing debt by the time G20 leaders meet in St. Petersburg in September.
But the United States and Japan have firmly opposed the idea of committing to fixed debt-to-GDP targets, with Washington trying to keep the focus of the G20 on growth.
"Quite frankly, the language could have been stronger but it's sufficient to move this forward," said Canadian Finance Minister Jim Flaherty.
When asked if he would agree to a target of 60 percent debt-to-GDP, Flaherty said: "That target or a better one. We in Canada support targets ... I think it's sensible for the G20 to set minimum targets."
In a communiqué after a two-day meeting, the G20 said it would be "mindful" of possible side effects of extended periods of monetary stimulus, a phrase added at the insistence of South Korea to take into account the concerns of emerging markets.
"Monetary policy should be directed toward domestic price stability and continuing to support economic recovery," the statement said.
Bank of Japan Governor Haruhiko Kuroda said the G20 language was not directly aimed at the BOJ's $1.4 trillion monetary stimulus announced earlier this month.
Still, Siluanov said the G20 agreed that greater monitoring of the side effects of Japan's policy easing was needed. Kuroda, though, said specific side effects were not discussed.
The BOJ is not alone in flooding its economy with cheap funds to try to boost borrowing and spending. The U.S. Federal Reserve, the Bank of England and, to some extent, the European Central Bank have as well.
The G20 leaders urged the euro zone to quickly move toward a banking union, a key element in stabilizing the euro zone. However, Germany repeated on Friday its earlier position that European Union laws needed to be changed before one of the elements of the banking union, a scheme for winding down failing banks, can be introduced - which is likely to delay the process.
The struggles of the euro zone dominated G20 discussions, delegates said, as harsh austerity measures have failed to lift the region out of its economic slumber. The United States has been pressing Europe to ease up on its budget cutting.
"It was supposed to be a G20 meeting, but for a moment I thought it was a G7 meeting. All that we heard was how sick Europe is and how badly affected many countries of the world are," said India's finance minister, P. Chidambaram, who spoke at the Peterson Institute in Washington.
"They have a very accommodative monetary policy. They are doing whatever it takes to rescue economies that seem to be tumbling one after another."
SOFT DEBT TARGETS
The drive toward government austerity has been undercut by weakness in economies that took severe measures to cut deficits, including Britain, which is headed into its third recession in the last five years. The U.S. economy also shows some signs of strain that economists pin on belt-tightening in Washington.
Earlier this week, the International Monetary Fund reduced its forecast for global growth and reiterated its call for some European countries to throttle back their austerity drives.
Fitch cut its credit rating on Britain on Friday to double-A-plus, citing expectations that general government debt will rise to 101 percent of GDP by 2015-2016 due to weak economic growth.
In an interview with BBC television, IMF chief Christine Lagarde said now might be time for Britain to consider relaxing its focus on austerity given the recent weakness in its economy.
Siluanov also said a greater amount of coordination was needed with the IMF on global liquidity, with recommendations expected by next July.
G20 ministers called on the Financial Stability Board to oversee work on reforms for short-term interest rate benchmarks such as Libor in the aftermath of a global rate-rigging scandal. FSB was asked to report back in July on its progress.