Leaders of the Group of 20 countries must agree on non-fiscal measures to boost their economies at their next meeting because they are running out of government money to fuel the global recovery, Angel Gurria said today.
“Countries need flexibility in labor markets, exchange rates; they need structural adjustment policies like competition, education, innovation,” Gurria, secretary general of the Organization for Economic Cooperation and Development, said in an interview in Montreal today. “These are the things that are going to make the recovery hold, because you can’t hold it up with public money any more. It’s gone.”
G-20 leaders are due to meet in Toronto June 26-27. Canadian Prime Minister Stephen Harper said in Parliament today the summit will focus on ways for countries to recover from the global recession and, in some countries, pare deficits.
“We need countries to start putting the pieces together now,” Gurria said. “They need to coordinate.”
At a June 4-5 meeting of Group of 20 finance chiefs in Busan, South Korea, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand. European Central Bank President Jean-Claude Trichet said fiscal tightening in “old industrialized economies” would aid the expansion by shoring up investor confidence.
The International Monetary Fund calculates budget shortfalls among the G-20 will average 6.8 percent of gross domestic product this year, up from 0.9 percent in 2007.
“In the medium and long term, countries need fiscal consolidation,” Gurria said today. “They need a clear path away from this unsustainable deficit situation. They can’t stay on that track.”
The sovereign debt crisis that originated in Greece earlier this year prompted leaders from the euro region to pledge 750 billion euros ($896 billion) in loans to calm markets and stabilize the European currency. The euro has depreciated by about 13 percent against the dollar since April 14.
A 110 billion-euro loan package for Greece unveiled on May 2 after the country was cut off from markets failed to stem a surge in Portuguese and Spanish borrowing costs.
Investor reaction regarding Spanish government bonds amounted to “kneejerk pessimism,” Gurria said.
Spain was “unduly and unfairly associated with a state of affairs of other more vulnerable countries” such as Greece, he said. “Spain has less than 60 percent of debt to GDP. Sometimes the market does not discriminate, and they should.”