World leaders gathered in Toronto have agreed to balance fiscal consolidation with the need to maintain pro-growth economic policies, according to excerpts from a leaked copy of the G20's final communiqué posted online.
In the build-up to the summit, a group led by the United States and India were advocating continued economic stimulus, fearing that spending cuts at this time would threaten the fragile global recovery.
Professor John Kirton, co-Director of the G20 Research Group says the G20 is taking a "growth first" approach to the sustaining the global recovery, and that many of the countries adopting fiscal consolidation are giving themselves a year before the spending cuts will take effect.
Canada was apparently able to persuade the G20 to commit to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016, according to the leaked draft.
"Sound fiscal finances are essential to sustain recovery ....", the draft was quoted as stating. "The path of recovery must be carefully calibrated to sustain the recovery in private demand."
However, in a nod to Europe and others facing serious fiscal challenges, the G20 acknowledged the need to "accelerate the pace of consolidation."
While the previous two G20 summits in London and Pittsburgh were marked by agreement on the need to prop up the global economy through government spending and accommodative monetary policy, leaders at this summit were compelled to craft a compromise between austerity and spending.
Earlier this year, sovereign debt problems in Greece rattled the markets and drove up borrowing costs in the euro area. The focus in Europe therefore shifted to pacifying the bond markets via the swift adoption of austerity measures.
In agreeing to halve the budget deficit by 2013, the White House said that it is committed to putting US public finances on a "sound and credible medium-term trajectory."
On the verge of enacting the most sweeping financial reforms in seventy years, the US joined the G20 in calling for negotiators to reach agreement on new capital and liquidity standards by the G20's meeting, which takes place in South Korea this November.
Meanwhile, the G20 threw support behind a special tax on banks, stating that the "financial sector should make a fair and substantial contribution toward paying any burdens associated with government intervention, where they occur, to repair the financial system or fund resolution."
A statement also kept the door open for nations to adopt so-called Robin Hood taxes that would levy against financial transactions.
Advocates say the additional tax on banks, hedge funds, and other financial institutions would raise billions to help reduce national debt and pay for efforts to reduce poverty and address climate change.
China has once again managed to keep mention of its yuan out of the final G20 statement.
The draft was reportedly set to welcome China's recent decision to free its yuan from being essentially pegged to the dollar.
However supportive the G20 statement would have been, the Chinese continued to insist that the matter is not one for international discussion.
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