World Business

G-20 responds to European debt crisis with deficit-cutting goal

(Agencies)
Updated: 2010-06-28 16:12

'Powerful statement'

The phrasing meant "we are going to treat President Lula of Brazil with respect," said John Kirton, director of the G-8 Research Group and co-director of the G-20 Research Group at the University of Toronto. "It's the advanced industrial economies that have the problems, so the G-20 agrees that those with the problem have got to do the solution."

"It's a powerful statement," said Craig Alexander, chief economist of Toronto-Dominion Bank, Canada's second-largest bank by assets. "The emphasis now is on fiscal restraint."

The G-20, which accounts for about 85 percent of the global economy, replaced the G-8 last year as the world's foremost international policy-coordinating forum. The larger group means developed and emerging economies are trying to find common ground amid differences in prosperity that vary from the US's $46,400 in GDP per capita to India's $3,100.

The G-20 leaders said banks need to have "significantly higher" capital, while giving lenders more flexibility to implement the changes. Countries should adopt the new standards by the end of 2012, and banks will be allowed to phase in capital increases during a transition period.

Bank tax

Leaders said they will seek final agreement at a summit in Seoul in November when the Basel Committee of Banking and Supervision, made up of international central bankers, will propose a road map. The US pushed for stricter new capital rules while Europeans stressed the need for a phase-in period.

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The group didn't support the implementation of a bank tax, whose backers include the UK.

"Some countries are pursuing a financial levy," the G-20 said. "Other countries are pursuing different approaches."

Royal Bank of Canada's Nixon called the statement "quite positive," saying, "I don't think there's any surprises to the banking industry."

The group agreed to refrain from increasing or imposing new barriers on trade until the end of 2013 and reiterated support for the Doha round of World Trade Organization talks. Even so, both the G-20 and the G-8 stopped short of calling for completion of the Doha trade accord by a certain date, and the G-8 emphasized the need for regional and bilateral agreements.