Fiscal risk divides G20 in roadmap to recovery | business | Hindustan Times
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Fiscal risk divides G20 in roadmap to recovery

World leaders will warn against taking the global economic recovery for granted while noting that the huge costs of stimulus could hurt long-term growth, a draft G20 document shows.

business Updated: Jun 24, 2010 23:36 IST

World leaders will warn against taking the global economic recovery for granted while noting that the huge costs of stimulus could hurt long-term growth, a draft G20 document shows.

The Group of 20, which meets in Toronto this weekend, has won credit for preventing the 2008 global recession from becoming a depression. But as the economy recovers, G20 unity is fraying. The group needs to forge consensus on controversial topics such as how quickly to shrink government deficits, how best to strengthen banks and how to harmonise regulatory reforms.

The draft version of the summit communique reflected divisions over policy priorities, between supporting still-shaky growth and shrinking budget deficits.

Europe’s simmering debt troubles are a reminder that when markets lose faith in governments’ ability to rein in spending, borrowing costs soar and countries are forced into swifter, harsher fiscal fixes.

Canada has proposed G20 to agree to halve budget deficits by 2013 and stabilise or cut debt-to-GDP ratios by 2016, which some Europeans feel is too modest.

The G20 draft said the recovery was “uneven and fragile” and warned: “There is no room for complacency.”

At the same time, it said “fiscal challenges in many states are creating market volatility, and could threaten the recovery and weaken long-term growth.”

The US on the other hand has warned against withdrawing supports too soon. “We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth,” US Treasury Secretary Timothy Geithner and White House economic adviser Larry Summers said in the Wall Street Journal.