Published February 16, 2013
MOSCOW – The Group of 20 nations will pledge to reduce public debt but are likely to agree on concrete targets only at a leaders' summit in September, EU Economic and Monetary Affairs Commissioner Olli Rehn said.
"There is a clear commitment to credible medium-term plans of fiscal adjustment and I would expect that in the final communiqu�� we will state that we will define more precisely G20 policy in the St. Petersburg summit," Rehn told Reuters.
The world's 20 biggest economies decided last year in Mexico that they would come up with credible and ambitious country-specific targets for debt-to-GDP ratios beyond 2016, and clear timetables to achieve them.
"We expect to have concrete draft proposals on the table (by April) so we can build on that and agree more clear on quantifiable targets, because it's important that you maintain the momentum of fiscal consolidation," given still high levels of public and private debt in advanced economies, Rehn said.
He pointed out that in Europe public debt was around 90 percent of gross domestic product. Japan, which wants to stimulate its stagnant economy, has a public debt of more than 200 percent of GDP.
"There is no way that we can afford to get away from the medium-term fiscal objectives," Rehn said.
European policymakers believe that once debt exceeds 90 percent of GDP it becomes a drag on economic growth, as debt servicing eats up scarce resources.
"We have a common view on the need to have a credible medium-term plans for fiscal consolidation, which is also essential so we have foundation for sustainable growth," Rehn said.
A debt-cutting pact struck in Toronto in 2010 will expire this year if leaders fail to agree to extend it at a G20 summit of leaders in St Petersburg in September.
The United States, which has a debt of 73 percent of GDP, plans to consolidate its public finances, but does not want to do it too abruptly to avoid triggering a recession.
European and other G20 countries want Washington to present a plan to reduce its debt, but only in the medium term, because a sharp drop in U.S. government spending would have a highly negative impact on world growth.
"It has been underlined in the discussion, and rightfully so, that it is of a paramount importance that the United States will be able to resolve its fiscal cliff building on the partial deal," Rehn said.
U.S. politicians were able to avoid an initial year-end deadline for spending cuts with a deal that raised taxes on the wealthiest while leaving lower rates in place for most Americans. The agreement to avoid the so-called "fiscal cliff" postponed automatic cuts for two months.
"We support the United States in that endeavour, because we're all in the same boat, we're all depend on each other and it's crucial for the global economy and also for the European economy that the U.S. will be able to have a more comprehensive solution to the fiscal cliff and especially have a credible, medium-term plan of fiscal consolidation." Rehn said.
(Reporting By Jan Strupczewski, editing by Mike Peacock)