G-20 Nations Wonder: How Soon Is Too Soon to Cut Spending?


In June, leaders and top finance officials from the world’s twenty biggest economies gathered in Toronto, Canada. One of the big issues they discussed is how and when to reduce deficits and economic growth measures as conditions improve.Chancellor Angela Merkel defended Germany’s decision to cut spending by one hundred billion dollars over four years. But some experts say the world economy is still too weak for Europe’s biggest country to reduce spending.Earlier this year, Germany was slow to react to the Greek debt crisis. European countries later had to agree to a nearly one trillion dollar rescue for the euro area.Other countries including Britain, France and Japan have also announced cuts. But American Treasury Secretary Tim Geithner says: “Without growth now, deficits will rise further and undermine future growth.”Economists also point out that spending cuts alone do not solve the problems of countries with structural economic problems.G-20 nations are also struggling with financial reform issues. These include new rules for risky financial products and closer supervision of banks.In June, Britain’s finance minister announced a new tax on big banks. Germany and France are considering similar measures to pay for future financial problems. President Obama proposed the idea for the United States in January. But how many countries will join Britain is not clear. Nineteen countries and the European Union form the Group of 20, including developing economies like Brazil, China, India and Russia. Economist Sebastian Mallaby at the Council on Foreign Relations says G-20 nations should work together on financial reforms.G-20 nations also face the issue of trade imbalances, like the one between the United States and China. China said it would not discuss the dispute over its currency at the Toronto summit. But China announced it will slowly let the value of the yuan rise. It later reached its highest exchange rate in two years. China’s export prices may rise, but an American diplomat said the action “takes an irritant off the table in the U.S.-China relationship.”

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