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Flaherty Says G-20 May Give U.S. Flexibility to Cut Deficit

Canadian Finance Minister Jim Flaherty said Group of 20 countries may agree to give the U.S. more flexibility to meet deficit reduction targets, even as they reaffirm their commitments to more sustainable budgets.

Advanced G-20 economies agreed in 2010 to cut deficits in half by 2013 and start to stabilize their debt-to-output ratios by 2016. The G-20’s credibility is at stake if the group doesn’t reaffirm its deficit reduction commitments, Flaherty told reporters today ahead of a meeting of finance ministers and central bankers in Mexico City.

“There may have to be some modification with respect to deficit targets,” said Flaherty, because the objective may “not be compatible for the Americans.”

The focus of global finance chiefs meeting today in Mexico City has shifted toward fiscal challenges in the U.S. after three years of pressuring Europe to restore budget control, amid concerns that a sharp budgetary pullback in the world’s largest economy will undermine global growth.

Flaherty said the so-called fiscal cliff of tax increases and spending cuts that will take effect next year unless Congress acts has surpassed the European debt crisis as the biggest risk for the global economy. It’s important the U.S. establish a plan to make its budget path more sustainable, he said.

“There is a reasonable prospect the Americans can reach their target in the medium term,” Flaherty said. “It’s very important the Americans show leadership on that.”

Flaherty said he will promote a “strong accountability mechanism” at the Mexico City meeting to assess progress on G-20 commitments such as deficit reduction targets and pledges to bolster capital requirements for banks.

“We just have to stay on those two issues,” Flaherty said. “We need to stay there, persist and demonstrate perseverance.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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