G20 puts growth before austerity, seeks to calm markets
Finance ministers pledge to shift policy carefully to avoid derailing recovery
Britain’s Chancellor of the Exchequer George Osborne (attends a news conference as part of the G20 finance ministers and central bank governors’ meeting. Photograph: Grigory Dukor/Reuters
The Group of 20 nations put growth ahead of austerity as it seeks to rebalance a multi-speed global economy, pledging to shift policy carefully so that recovery is not derailed by volatile financial markets.
Finance ministers and central bankers signed off on a communique that acknowledged the benefits of expansive policies in the United States and Japan but highlighted the recession in the euro zone and a slowdown in emerging markets.
“While our policy actions have contributed to contain downside risks, those still remain elevated,” the statement said. “There has been an increase in financial market volatility and a tightening of conditions.”
Indications that the US Federal Reserve would scale back its monetary stimulus dominated the two-day talks in Moscow, with emerging markets most concerned by a resulting selloff in stocks and bonds, and a flight to the dollar.
Hosts Russia said G20 policymakers had soft-pedalled on goals to cut government debt in favour of a focus on growth and how to exit central bank stimulus with a minimum of turmoil.
“(G20) colleagues have not made the decision to take responsibility to lower the deficits and debts by 2016,” finance minister Anton Siluanov told Reuters. “Some people thought that first you need to ensure economic growth.”
While the US recovery is gaining traction, China’s export motor is sputtering, Japan’s bid to break out of deflation has not reached escape velocity, and demand in the euro zone is too weak to sustain a job-creating recovery. Officials backed an action plan to boost jobs and growth, while rebalancing global demand and debt, that will be readied for a G20 leaders summit hosted by President Vladimir Putin in September.
“We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing,” the statement said. “Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated.”
In return for its pledge to “message” its monetary policy intentions clearly, Washington managed to ensure that the text contained no binding fiscal targets, saying that consolidation should be “calibrated” to economic conditions.
Sources at the meeting said Germany was less assertive than previously over commitments to reduce borrowing to follow on from a deal struck in Toronto in 2010, with the improving US economy adding weight to Washington’s call to focus on growth.
With youth unemployment rates approaching 60 per cent in euro zone strugglers Greece and Spain, the growth versus austerity debate has shifted - reflected in the fact that G20 finance and labour ministers held a joint session yesterday.
The crisis in the euro zone periphery has been exacerbated by capital outflows, and the communique pledged to move “decisively” with reforms to create a banking union in Europe that could revive cross-border lending. Exchange rates and the threat of competitive devaluations barely figured, delegates said - in contrast to an ill-tempered G20 meeting in February coloured by talk of currency wars.