The world’s leading economies pressed the US and Europe to swiftly resolve their fiscal challenges on Monday, warning that they threaten to harm global growth.
Finance ministers and central bankers from the G20 vowed to do “everything necessary” to strengthen the world economy, reduce financial market volatility and generate jobs.
The two-day talks in Mexico City focused on the eurozone’s relentless debt crisis and the looming “fiscal cliff” in the US — a set of automatic spending cuts and tax hikes that could impact global growth if they go in effect in January.
“Global growth remains modest and downside risks are still elevated,” the G20 said in a final communique.
The statement cited “possible delays in the complex implementation of recent policy announcements in Europe” and a “potential sharp fiscal tightening in the United States.”
However, the finance chiefs also voiced concern over Japan’s fiscal troubles, as well as slowing growth in emerging nations and “additional supply shocks” in some commodity markets.
G20 officials urged the winner of the US presidential election — be it US President Barack Obama or Republican challenger Mitt Romney — to rapidly act to reach a deal with US Congress after the vote.
“The US leadership needs to address quickly the so-called ‘fiscal cliff,’” IMF Managing Director Christine Lagarde said.
She added that there were “clearly factors of uncertainty not only for the US economy, but also for the global economy, given the size of the US economy.”
“Whoever is going to be elected or re-elected tomorrow will be faced with that challenge,” Lagarde said.
The G20 statement said Washington will “carefully calibrate” the pace of its fiscal tightening so that public finances are placed on a “sustainable long-run path while avoiding a sharp fiscal contraction” next year.
Spanish Minister of Economy Luis de Guindos warned that the US fiscal cliff hung over the world like the “Sword of Damocles.”
Meanwhile, Europe’s debt crisis was again in the spotlight at the G20 talks.
“There was a clear message from many in the room today to our European colleagues that they do need to remove the policy uncertainties that are dragging on growth and investment,” Australian Treasurer Wayne Swan said.
However, the eurozone also won praise for recent moves to create a banking union, activate a 500 billion euro (US$650 billion) crisis firewall and launch a European Central Bank bond buying program.
While G20 nations “recognize” the progress made in Europe, “there is also impatience and a strong demand for all of this to be put in place in an effective and concrete way,” a senior G20 official said.
Greece faces key deadlines to avoid bankruptcy this month, while Spain is under pressure to seek a bailout of its own amid a recession that has pushed the unemployment rate to 25 percent.
De Guindos outlined his country’s banking and labor reforms to G20 counterparts at a dinner on Sunday night.
However, he told reporters on Monday that his country does not need a rescue from European partners for now as it was “well-financed this year.”
Greece is in tough negotiations with the EU, the IMF and the European Central Bank to unlock a 31.5 billion euro tranche of a bailout package or risk bankruptcy this month.
The Greek parliament will hold crucial votes this week on a new round of austerity demanded by international lenders. However, Greece also wants a two-year delay to implement its fiscal obligations, an issue that divides Europeans.