TORONTO — World leaders Sunday endorsed a pledge by rich nations to slash budget deficits in half in three years despite President Barack Obama’s concerns that cutting stimulus spending too quickly could stall the global recovery.
“Serious challenges remain,” they cautioned. “While growth is returning, the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels, and the social impact of the crisis is still widely felt,” according to the closing statement from the Group of 20 major industrial and developing nations.
Summit participants navigated a careful course between Obama, with his emphasis on growth, and fellow leaders such as German Chancellor Angela Merkel who advocated spending cuts and tax increases.
“Advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016,” according to the statement. The gross domestic product, or GDP, measures the value of all goods and services and is considered the best gauge of economic health.
At the same time, the statement incorporated Obama’s cautions against pulling back government supports too quickly. “To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand,” it said.
Canadian Prime Minister Stephen Harper, the summit host, said at a wrap-up news conference that “fiscal consolidation is not an end in itself,” and there is “an ongoing role for stimulus in the short term.” Summit participants have been using the term “fiscal consolidation” to refer to spending cuts and tax increases.
“G-20 still has a lot to do to fully entrench the global recovery but these are important steps forward. They are steps that Canada has been seeking,” Harper said.
A White House statement said the G-20’s Toronto agreement carries through with existing stimulus programs while recognizing that deficit-reduction “needs to be calibrated ... and tailored to national circumstances.”
“The point is, in each country, what we have to recognize is that the recovery is still fragile,” Obama said.
Meanwhile, conditions on the streets of Canada’s biggest city remained tense Sunday.
Police, responding to demonstrations more aggressively than they had the day before, raided a university campus and rounded up protesters in an effort to quell further violence after protesters rampaged through the city the night before, smashing windows and torching police cruisers. Police said they have arrested more than 600 people.
Despite the violence, no serious injuries were reported among police, protesters or bystanders, Toronto Police Constable Tony Vella said Sunday.
Harper called those responsible for the violence “thugs” and suggested the destruction and fires seen on the streets of Toronto justified the high cost of security that Canada spent for the summit.
An estimated 19,000 law enforcement officers were drawn from across Canada for the summit, at an estimated cost of more than $900 million.
The G-20 statement limits the deficit-reduction goal to the most industrialized nations. It offers governments flexibility on when to start balancing their books. It does not include country-by-country goals, and it urges those in the most precarious financial positions to accelerate their plans.
European countries, in particular, have been rattled by the near-default of Greece on its government debt.
The document doesn’t endorse a bank tax advocated by Europe and the U.S. to set up a fund to pay for future bailouts. Canada, Australia and Japan, whose banks did not fail in the crisis, oppose the levy.
Instead, it says all countries should make sure taxpayers are not stuck with the bill when banks fail and leaves it up to individual countries to decide how they want to do that. Examples include a bank tax, stiffer cash-reserve requirements or other mechanisms.
Canada’s Harper urged leaders to “send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order.” He told his colleagues they needed to walk a “tightrope” between deficit spending this year, ensuring the recovery continues, and then switching to deficit reduction programs.
The G-20 includes the world’s major industrial countries - the United States, Japan, Germany, France, Britain, Canada, Italy and Russia - plus major developing nations such as China, India, Brazil and South Korea. That roster accounts for about 85 percent of the world’s economic output.
The United States ran a record deficit of $1.42 trillion last year, or 10 percent of its GDP. Private economists expect the deficit will decline only slightly to $1.3 trillion this year, which would amount to 9 percent of GDP.
Obama’s budget plan from February would cut the deficit in half by 2012. He’s also named a commission to examine how to trim the deficit further, to 3 percent of GDP - a level economists generally view as sustainable.
Republicans have suggested it is unlikely that Obama will be able to meet his own deficit-reduction targets and said the White House has yet to put forward a credible plan. And critics complain that Obama’s deficit commission lacks the power to make Congress consider its recommendations.
Britain is in worse shape. Its deficit this year is more than 10 percent of GDP.
“For European countries with high budget deficits, especially for the U.K. with the highest budget deficit in the G-20, we have got to make our contribution to that sustainable growth by showing the world that we can live within our means,” said British Treasury chief George Osborne.
Britain last week put forward an emergency budget, raising taxes and cutting spending by levels not seen since World War II.
On the other end of the spectrum, Canada’s federal budget deficit will be less than 3 percent of GDP this year. Ottawa’s plan aims to balance the budget by 2014-15.
As he opened the final session, Harper boasted that Toronto was “home of the most solid financial sector in the world.” Its banking system was barely affected by the financial meltdown of 2008.
The G-20 statement made only a passing reference to the need for “greater exchange rate flexibility” and made no specific mention of China’s recent announcement that it would allow its exchange rate to rise against the dollar.
The value of the yuan, or renminbi, is a major irritant in U.S.-China relations. Some in the U.S. say a swift revaluation of the yuan is crucial to the global economic recovery.
Chinese President Hu Jintao warned Sunday that wildly fluctuating currency exchange rates can threaten financial markets.
Information for this article was contributed by Emma Vandore, Jane Wardell, Darlene Superville, Jeannine Aversa, Foster Klug, Martin Crutsinger, Ian Harrison, Charmaine Noronha and Tom Raum of The Associated Press.
Front Section, Pages 1 on 06/28/2010