Like any international gabfest these days, two things are certain: leaders will give the impression that great progress was made during the meeting, and protesters will take to the street to promote their own message. The G8 / G20 meetings held in Toronto this past weekend, proved to be no exception.
The G8 meeting was actually held in Huntsville, a resort area about two hours north of Toronto, and was convened to discuss several key social / political issues. The question of how to respond to recent aggressive actions by North Korea was discussed, as was the issue of IranÃ¢â‚¬â„¢s nuclear capabilities. Strong words were also reserved for the Democratic Republic of Congo which was rebuked for expropriating foreign-owned companies operating legally, and under license, within the DRC.
The showpiece for the G8, and a personal agenda item advanced by CanadaÃ¢â‚¬â„¢s Prime Minister Stephen Harper, was the Muskoka Initiative. Named for the region where the talks were held on Friday, the Muskoka Initiative pledged billions for areas of the world under-serviced in terms of maternal and newborn health-care. A total of $5 billion in new funding was committed by G8 nations, other non-G8 countries, and even private foundations.
The real work however, was reserved for the G20 meetings which took place in downtown Toronto on Saturday and Sunday. Going into the sessions, there were two issues that were seen as potential deal-breakers. The first was the implementation of a global Ã¢â‚¬Å“bank taxÃ¢â‚¬Â. The second was the question surrounding the need for continued stimulus spending, versus the need to cut ballooning government deficits.
Global Ã¢â‚¬Å“Bank TaxÃ¢â‚¬Â
In the days leading up to the G20 meeting, there had been much back and forth in the media. Many European countries supported the idea of imposing a per-transaction levy to build a fund to payback taxpayers for bailing out private banks, and to create a fund for future fiscal emergencies. Canada, China, Japan, and India in particular, were against the measure, with Canada positioning the scheme as a Ã¢â‚¬Å“punitiveÃ¢â‚¬Â measure that was uncalled for in Canada and other countries where banks did not receive bail-out funds.
In the end, it was decided that this was a sovereign-level decision. In other words, individual countries were free to implement their own tax but it would not be a global-wide initiative.
Stimulus Spending and Deficit Reduction
The agenda item with the greatest potential for division however, was the call led by the United States and Canada to continue government-led stimulus efforts. Much has been made of late as to the timing for governments to reduce spending aimed at boosting the economy, with the very pressing need for some jurisdictions to reduce deficits and tackle debt.
For months, Greece has held the unhappy position of poster child for all that is wrong in the EU and its record of deficit spending. For decades, Greece has been living beyond its means and it has finally reached the point where the government must either enact drastic spending cuts, or simply shutter the countryÃ¢â‚¬â„¢s windows and go out of business.
Other EU members such as Spain and Portugal are in equally dire straits, and even larger EU economies including Italy and England are rapidly reaching crisis point. Germany, despite being the strongest of the EU economies, has scheduled spending cuts of 80 billion euros (US$107 billion). The UK also outlined substantial spending reductions within a few days of the new coalition government taking power.
It is the sudden shutting of the spending taps that has some leaders worried that without sufficient spending, the global economy could fall back into recession.
Regardless of these initial differences, agreement was reached near the end of SundayÃ¢â‚¬â„¢s planned sessions. Following the acceptance of a compromise brokered by the Canadian Prime Minister, a communiquÃƒÂ© was drafted to highlight the news that the G8 countries would continue with the current spending programs as planned. However, over the next three years, each G8 government, with the exception of Japan, would commit to reducing deficit spending by 50 percent.
In some cases, meeting this target will not be a difficult task. Canada for instance, should be able to meet this target solely on the money saved once it completes the current round of stimulus spending. For several other countries however, it is not so certain that they will meet their deficit reduction goals.
Japan at least, had the honesty to say from the very beginning, that its massive deficit could not be wrangled down to half its current level by mid-2013, and opted out at the very beginning. The US is also a big question mark and the only way it could hope to meet the deficit target, would be through a combination of considerable spending cuts, and rather dramatic tax hikes. With more mid-term elections looming and a general election just over two years away, it is hard to imagine any government basing its re-election campaign on such a platform.
So, did the G8 / G20 actually accomplish anything? Well, in comparison to past summits, the answer is probably Ã¢â‚¬Å“yesÃ¢â‚¬Â. Ultimately, however, it is the market that will pass meaningful judgment.
By late-day trading in New York, the Dow was up just under 40 points, while the S&P 500 was barely in positive territory. In fairness however, trading was muted as investors wait for monthly employment data due later in the week. Still, the US dollar did gain on the euro, and gold dropped a full percentage to $1,237.45. Some of the drop is probably profit-taking, but it also suggests that safe-haven buying declined slightly in the wake of the summit. Whether this all justifies the billion plus price tag, is another issue.
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