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G20 Euro-solution: Growth over austerity

business Updated: Jun 20, 2012 08:52 IST
Pramit Pal Chaudhuri

A Eurozone solution and an economic growth commitment emerged from the end of the Group of 20 summit in Mexico. Prime Minister Manmohan Singh in a statement said “there was general agreement that policy in all countries must shift to strengthening growth.”

The summit sought to send a reassuring message to markets nervous about the Eurozone financial crisis. It outlined measures that Germany, France, Spain and Italy had committed to in Mexico including “common and enforceable” fiscal rules and unified banking supervision.

In fact, the G20 statement was the first official document to specify what the European Union’s much touted “banking union”would actually mean, something that the market had been demanding for some time.

India has come out of the summit with a “clear understanding” that the Eurozone crisis is “solvable,” said Indian officials. The Eurozone states’ commitment means a “solution is in sight.”

R. Gopalan, secretary for department of economic affairs and India’s chief negotiator, said the Eurozone promises as the “most valuable thing we have got out of the summit.” Singh, though, admiteed that this would “necessarily be a gradual process.”

The G20 solved the austerity versus growth debate by agreeing that “surplus countries” should increase demand at home. In other words, the Germanys and Chinas of the world should increase their domestic spending – with the expectation that overall increase in demand increase would help stabilize the global economy and help debtors like Spain and Italy.

India was pleased at the G-20’s endorsement of the International Monetary Fund’s quota reform, which would give emerging countries greater voting shares. “Summit leaders have shown a commitment to take this further and with some urgency,” said Gopalan.

Knowing this would come under some criticism at home, Singh felt it necessary to defend India’s decision to pledge an additional $10 billion to the IMF saying “that as a responsible player in the global community, we must play our part.”

There was recognition of the unprecedented commitment of the emerging economies, represented in the BRICS, to $75 billion to the International Monetary Fund’s firewall against a Eurozone crisis.

A Los Cabos Action Plan was also outlined by the summit leaders.

The G20 finance ministers are set to meet again in Mexico City in November.