By Chris Giles and Christian Oliver
Finance ministers of the world’s leading economies have been so spooked by the sovereign debt crisis that they have decided they can no longer wait until economies are growing strongly before they remove fiscal stimulus.
The meeting of the Group of 20 finance ministers and central bank governors in Busan, South Korea, at the weekend also dropped proposals for a global banking levy, giving countries leeway to do what they thought best for their domestic circumstances.
The communiqué of the meeting made clear the G20 no longer thought expansionary fiscal policy was sustainable or effective in fostering recovery because investors were no longer confident about some countries’ public finances.
“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it said. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.”
These words were in marked contrast to the G20’s April communiqué, which called for support to be maintained until the recovery picked up steam.