The Greek sovereign debt crisis, which saw the European Union (EU) and the International Monetary Fund (IMF) coming out with bailout packages, could see G-20 shifting its focus to issues like management of government deficits through an exit of stimulus measures.
While the host country, Canada, is seeking support from countries like India and China against the controversial banking tax, it is clear that the issues like management of financial systems, lowering deficits through an exit strategy and free trade should take centrestage when the G-20 leaders meet here on June 26 and 27.
Canadian international trade minister Peter Van Loan told journalists on Wednesday that G-20 was that latest “piece of architecture” the success of which depended on how much it focused on the real economic issues. Loan said the meeting should focus on economic issues and “avoid the temptation of getting into any other issues”.
The host country, which is fighting the banking tax proposal, as about 30 per cent of the overseas business of its banks are in the US, sees the levy as a penalty on those financial systems that followed strict rudential rules. The US and the EU are pushing for a bank tax so that the cost of bailouts in times of financial crisis does not land on individual taxpayers. Loan, however, said: “The bank levy is the wrong approach because it will not prevent bank failure and punish consumers.”
Canada has not been hit by the global economic slowdown much and did not see any bank failures, though its exports, majority of which are to the US, took a hit. With a debt-to-GDP ratio of 34 per cent this year, Canada has the lowest deficit among the G-7 industrial countries. The other G-7 countries are France, US, UK, Germany, Japan and Italy.
IMF estimates the ratio for the US at 67 per cent and the UK at 75 per cent. Though Canada posted a record deficit of C$53.8 billion ($52.1 billion) for the financial year to March 2010, the first of a two-year package of stimulus spending and tax cuts unveiled in January 2009, the deficit is expected to drop slightly in 2010-11 and shrink to C$1.8 billion in 2015.
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Stating that countries needed to look for strategies to exit stimulus measures, Loan said: “Each country has to move at its own pace and strike a balance for preventing a sovereign debt crisis.” Canadian Prime Minister Stephen Harper had earlier this week written to G-20 leaders, warning that the European debt crisis showed that the leaders faced a choice of cutting their deficits or seeing the financial markets force them into harsh measures.
Canada is hosting the G-8 and G-20 meetings. G-8 countries, comprising eight of the world’s leading economic powers — Canada, France, US, UK, Russia, Germany, Japan, and Italy — will meet before the G-20 summit and are expected to focus on social issues like maternal health and climate change.