The G20 emphasizes the importance of reducing fiscal deficits.

Escrito el 29 junio 2010 por GONZALO PABLO GARLAND en Economía Mundial

The last G20 meeting in Toronto ended with a strong recommendation to reduce fiscal deficits over the next few years. The objective is to cut the deficits in half by 2013, in particular in the developed countries, while it remains as a suggestion for emerging countries. It is not surprising that the recommendation is stronger for the developed countries, given that they incurred the highest deficits fighting against the recession, and are therefore most in need of this fiscal adjustment. And for once, in this respect Europe rates better than the United States.

Sovereign debts

The attacks against the sovereign debts of Greece, Portugal or Spain, led to tough measures to reduce the fiscal imbalances, and these measures have already been implemented over the last few months, including in other countries such as Germany, Italy, France or Britain. For this reason, part of the work has already been done on the European side of the Atlantic, and the need for the stronger adjustment is now in the United States. The emerging countries are clearly in a better position with regards to this. They are growing faster and have, in most cases, smaller deficits as a ratio to GDP.

W crisis

And this brings us back to the difficult «fine-tuning» that most developed economies are facing. There is a need to reduce the large fiscal deficits, but the way to attain this is by applying restrictive fiscal policies, which tend to reduce economic growth. When growth is as weak as it is now in some of these countries, the fear of a «double dip» or W crisis (falling back into a recession), reappears. That is why we also hear voices, inside the G20 itself, saying that yes, there is a need to reduce the deficits, but that there is also a need to be careful not to correct them too fast. This is why the 2013 period was approved, even though many European countries are moving faster in that direction, with the corresponding higher risk of a slowdown in growth. We will see later this month the revised forecasts for growth prepared by the IMF. I would not be surprised if some European countries’  prospects for growth this year are adjusted downwards.


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