G20 close to deficit cut deal
Leaders of industrialised nations agree on principles of plans to reduce deficit.
Last Modified: 27 Jun 2010 20:29 GMT
Violence has erupted at protests against
the G20 summit in Toronto [EPA]

G20 leaders have moved closer to hammering out a deal to slash spiralling national deficits within three years without jeopardising the fragile global economic recovery.

The leaders of the world's major industrialised powers agreed on Sunday to the principles of what they termed "growth-friendly deficit reduction" proposals, to be applied on an individual basis to countries seeking to avoid debt crises.

The agreement follows deep divisions within the group over whether to spend or cut their way to economic recovery, a point acknowledged by Canadian Prime Minister Stephen Harper, who told his counterparts there is a "tightrope that we must walk to sustain recovery".

"Advanced countries must send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order," he said as G20 leaders met in the Canadian city of Toronto.


The text of a draft communique to be issued by the G20 reveals that the leaders have pledged to put in place "plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances".

The deal would represent a compromise over an issue that had divided the countries present at the meeting. The US supports continued economic stimulus spending to galvanise the recovery, but European countries are facing a sovereign debt crisis that is squeezing national budgets and prompting governments to make severe cuts in spending.

Angela Merkel, the German chancellor, told reporters that any deficit reduction would  be done in a way that does not impact on economic growth. "It is an important common goal that will lead to sustainable growth," she said. 

Observers say that the US had softened its position during discussion and was prepared to accept that European countries needed to act on their spiralling debts.

Barack Obama, the US president, backed continued spending to ensure the world does not slip back into recesssion, but told David Cameron, the British prime minister that "we're aiming at the same direction: long-term sustainable growth".

Emerging economies are also opposed to spending cuts, believing that they will suffer as a result, concerns shared by Ban Ki Moon, the UN secretary-general.

"If the cuts take place in advanced countries it is worse, because instead of stimulating growth they pay more attention to fiscal adjustments," said Guido Mantega, the Brazilian finance minister. "We must not balance budgets on the backs of the world's poorest people."

Al Jazeera's Imtiaz Tyab, reporting from Toronto, said that there was a degree of flexibility in the proposals. "Countries will decide when they will stop spending," he said.


The G20 summit is being held against the backdrop of violent protests.

Canadian authorities on Sunday said more than 400 people had so far been arrested on charges ranging from mischief to assaulting an officer.

A group of people broke away from Saturday's largely peaceful demonstration, breaking store windows and burning two police cars in downtown Toronto before officers used tear gas to disperse them.

"What we saw yesterday ... is a bunch of thugs that pretend to have a difference of opinion with policies and instead choose violence in order to express those so-called differences of opinion," Dimitri Soudas, a spokesman for Stephen Harper, the Canadian prime minister, said.

"People do disagree on issues, leaders that meet all the time don't necessarily always see eye to eye all the time. But you don't see people burning up police cars and breaking windows," he added.

Al Jazeera and agencies
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