G-20 presses Europe and US to fix their fiscal challenges

G-20 presses Europe and US to fix their fiscal challenges

MEXICO CITY - Agence France-Presse
G-20 presses Europe and US to fix their fiscal challenges

Germany’s Finance Minister Wolfgang Schaeuble (L) and British Chancellor of the Exchequer George Osborne attend a meeting at the G20 Summit in Mexico City. REUTERS photo

The world’s leading economies have pressed the United States and Europe to swiftly resolve their fiscal challenges, warning that they threaten to harm global growth.

Finance ministers and central bankers from the Group of 20 leading developed and emerging nations 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 United States -- 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 G-20 said in a final communiqué.

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.” But the finance chiefs also voiced concern over Japan’s own fiscal troubles, as well as slowing growth in emerging nations and “additional supply shocks” in some commodity markets.

G-20 officials urged the winner of yesterday’s U.S. presidential election, pitting incumbent Barack Obama against Republican Mitt Romney, to rapidly act to reach a deal with Congress after the vote.

Action against fiscal cliff

“The U.S. leadership needs to address quickly the so-called ‘fiscal cliff,’” said IMF Managing Director Christine Lagarde. She warned that there were “clearly factors of uncertainty not only for the U.S. economy, but also for the global economy, given the size of the US economy.” “Whoever is going to be elected or re-elected tomorrow [on Nov. 6] will be faced with that challenge,” Lagarde said.

The G-20 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 Economy Minister Luis de Guindos warned that the US fiscal cliff hung over the world like the “Sword of Damocles.” Since a G-20 summit in June, the IMF slashed its 2012 global growth forecast to 3.3 percent, eurozone unemployment rose to a record 11.6 percent in September and growth decelerated in emerging nations.

In light of weaker growth, G-20 nations reaffirmed their commitment to reduce public deficits but gave themselves more room for maneuver, saying “they will ensure that the pace of fiscal consolidation is appropriate to support the recovery.” Europe’s debt crisis was again in the spotlight at the G-20 talks.

Ask for clear path

“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,” said Australian Treasurer Wayne Swan.

But the eurozone also won praise for recent moves to create a banking union, activate a 500-billion-euro ($650 billion) crisis firewall and launch a European Central Bank bond-buying program.
While G-20 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 G-20 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 G-20 counterparts at a dinner over the weekend.

But he told reporters on Nov. 5 that his country does not need a rescue from European partners for now as it was “well-financed this year.” Greece, meanwhile, is in tough negotiations with the European Union, the International Monetary Fund and the European Central Bank to unlock a 31.5-billion-euro tranche of a bailout package or risk bankruptcy this month.

EU Economic Affairs Commissioner Olli Rehn said the eurozone was “on track” to take a decision on the bailout funds at a Nov. 12 meeting of finance ministers.