Barack Obama’s push for continued deficit spending in the face of the tenuous economic recovery was largely overturned at the G20 summit in Toronto, Canada this weekend where world leaders agreed not to further plunge into the red.
In anticipation of the summit the White House last week warned that while the worst of the crisis may be over, the global recovery is anything but certain. The president himself alleged that the austerity measures as enacted throughout Europe threaten to undermine confidence and that more stimulus spending is necessary to move the world out of recession.
But European heads of government, led by German chancellor Angela Merkel, are concerned about a repetition of Greece’s debt crisis which still has nearby eurozone members Italy, Spain and Portugal worrying about their own fiscal balance — or lack of it. The EU has made a €750 rescue fund available should another country get into trouble while the continent is considering tougher budget rules to prevent a similar calamity from developing in the future.
The European perspective evidently prevailed in Toronto as the G20 countries agreed to cut their deficits in half by 2013. European Council President Herman Van Rompuy welcomed the measure, noting that the G20’s deficits average around 6 percent, half of which would correspond neatly with Europe’s own budget rule. Both Van Rompuy and European Commission President José Barroso said that the EU’s approach “in favor of stabilization” was “widely welcomed” at the summit.
Although it seems that other leaders did not share his position, Obama lauded the spirit of cooperation at the summit. He bristled at suggestions that his administration is less concerned about deficits than other nations, claiming that Germany’s plans “are no more front-loaded than ours.” The German government has announced €80 billion worth of budget cuts and is deeply unpopular because of it. Yet Obama assured reporters that he had intended to cut the United States’ deficit in half by 2013 all along.
Asked how he can boost confidence in his administration’s ability to meet that goal, considering that Democrats haven’t even managed to introduce a proper budget this year, Obama cited a three year discretionary spending freeze, “a whole host of measures to cut programs that aren’t working,” and PAYGO, which has existed since 1990 and was modified last year in order to allow multibillion dollar stimulus spending.
The president added that America’s “structural deficit” preceded the financial crisis and the $787 billion stimulus bill due to expansive entitlement programs as Medicare and Medicaid — entitlements which Obama’s health-care reform will probably only extend. He promised to put “very difficult choices” before the country next year and was prepared to call fiscal hawks’ “bluff.”