Finance leaders of the G20 economies on Friday edged away from a
long-running drive toward government austerity in rich nations,
rejecting the idea of setting hard targets for reducing national debt in a sign of worry over a sluggish global recovery.
The G20 club of advanced and emerging economies also said it would be watching for negative effects from massive monetary stimulus efforts,such as Japan’s — a nod to the concerns of developing nations that those policies risked flooding their economies with hot capital and driving up their currencies.
Russian Finance Minister Anton Siluanov said at a news conference that officials from the G20 nations believed overall debt reduction was more important than specific figures.
“We agreed that these would be soft parameters, these would be some kind of strategic objectives and goals, which might be amended or adjusted depending on the specific situations in the national economies,” he said.
Russia — this year’s G20 chair — had hoped to secure an agreement on setting fixed targets for reducing debt by the time G20 leaders meet in St Petersburg in September.
However, the US and Japan have firmly opposed the idea of committing to fixed debt-to-GDP targets, with Washington trying to keep the focus of the G20 on growth.
In a communique after a two-day meeting, the G20 said it would be
“mindful” of possible side effects of extended periods of monetary stimulus, a phrase added at the insistence of South Korea to take into account the concerns of emerging markets.
“Monetary policy should be directed toward domestic price stability and continuing to support economic recovery,” the statement said.
Bank of Japan (BOJ) Governor Haruhiko Kuroda said the G20 language was not directly aimed at the BOJ’s US$1.4 trillion monetary stimulus announced earlier this month.
Siluanov said the G20 agreed that greater monitoring of the side
effects of Japan’s policy easing was needed, while Kuroda said
specific side effects were not discussed.
The BOJ is not alone in flooding its economy with cheap funds to try to boost borrowing and spending. The US Federal Reserve, the Bank of England and, to some extent, the European Central Bank have as well.
The G20 leaders urged the eurozone to quickly move toward a banking union, a key element in stabilizing the eurozone. However, Germany repeated on Friday its earlier position that EU laws needed to be changed before one of the elements of the banking union, a scheme for winding down failing banks, can be introduced — which is likely to delay the process.
The struggles of the eurozone dominated G20 discussions, delegates said, because harsh austerity measures have failed to lift the region out of its economic slumber. The US has been pressing Europe to ease up on its budget cutting.
The drive toward government austerity has been undercut by weakness in economies that took severe measures to cut deficits, including Britain, which is headed into its third recession in the past five years. The US economy also shows some signs of strain that economists pin on belt-tightening in Washington.