In yet another sign that they are willing to do what it takes to stabilize the global economy, world leaders gathered in Toronto for the G-20 Summit have agreed to cut their debt in half in the next three years.
It’s the first time the G-20 has set dates for deficit reduction.
After emphasizing spending programs in the wake of the economic collapse that started in the spring of 2008, many countries, especially in Europe, have now shifted their attention to the growing debt crisis.
In addition to cutting deficits, world leaders also agreed to stabilize the ratio of public debt to gross domestic product by 2016.
Canada’s prime minister, Stephen Harper, had proposed the targets, backed by Germany and Britain, reports The New York Times. As we reported earlier this month, Canada has managed to weather the global economic crisis better than most and its debt to GDP ratio is about 35 percent, as compared to that of the US, which is 60 percent or the UK, which is 78 percent.
Countries heavily dependent on foreign debt, such as the United States, Japan and India, objected to the debt reduction goals and so the agreement was set as an expectation and not a strict deadline. It was largely agreed that Japan, with a debt to GDP ratio of more than 200 percent, would not be expected to meet the goal.
The US expressed concerns about a double dip recession if debt reduction is pursued too hastily. Dominique Strauss-Kahn, head of the International Monetary Fund, said he thought the risks of a new downturn were minimal.
“We don’t forecast any double dip,” Strauss-Kahn told The Times. “Double dip was not discussed at the meeting.”
President Obama said the US has already set a target for reducing its budget deficit by 2013, as have many of the G-20 countries. But not everyone is convinced enough is being done to ensure countries live within their means.
“While the illusion of progress is good, I don’t see real action to alter the imbalances that brought us to this crisis,” Raghuram G. Rajan, a former chief economist at the International Monetary Fund who is now a professor in the Booth School of Business at the University of Chicago, told The Times.
The United States, he said, continues to run large trade deficits financed by Germany, China and Japan. “The US has been the world’s consumer of first resort,” he added, “and because it has been unable to persuade other countries to spend more or to reform quickly, it is likely to take up that position once again.”
Photo by notanartist via Flickr.