G20 leaders and finance ministers will today seek to paper over a split on economic policy at their meeting in Toronto, by committing themselves to cutting budget deficits as long as it does not damage the global recovery.
A draft communiqué circulating yesterday indicated that countries would commit to halving their budget deficits over the next three to four years, while not reversing existing stimulus measures too hastily. The G20 will welcome China’s recent announcement that it will allow its currency, the yuan, to rise.
The communiqué will also signal that it will be up to individual countries to decide whether to introduce a levy on banks. The Financial Stability Board, the body that is steering the G20 on banking reform, believes that a bank levy is no substitute for tougher capital requirements and other measures designed to prevent a repeat of the financial crisis.
George Osborne, the chancellor, who flew to Canada yesterday for the G20 meeting, is seeking endorsement for the deficit-cutting strategy he set out in last week’s budget.
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But Stephen Harper, the Canadian prime minister and host of the meeting, will call for the G20 to do more to protect the recovery. Harper, whose own banking system weathered the financial storm better than most, will also warn against foot-dragging on banking reform.
Manmohan Singh, India’s prime minister, said the G20 needed to ensure a sustained economic recovery, which could be jeopardised by cutting deficits too quickly.
“My own feeling is that early fiscal retrenchment carries very considerable global risks,” he said. “Right now, the danger of deflation in the global economy is much greater than the danger of inflation.”
Timothy Geithner, the US treasury secretary, has said the focus of today’s G20 meeting should be growth and confidence. He will argue that countries should cut their deficits but only after growth resumes.