The G-20 summit in Toronto ended with yet more vague promises. The rich nations pledged to slash their budget deficits, without making any real commitments. The result is a setback for President Obama, who failed to find support for new stimulus programs in Europe.

At first glance, the promises of the G-20 nations, which were meeting in this format for the fourth time, sounded impressive. National deficits will be “at least” halved by 2013, according to the summit’s closing statement. But the agreement has no teeth, given that it does not foresee any binding mechanisms to make sure that the commitment is kept. Every country will manage its own cost-cutting efforts, with some taking action sooner, others later. The measures will be “tailored to national circumstances,” the statement reads.

The discussion of possible new rules for the financial sector was postponed to the next summit in South Korea, which is scheduled for November. Merkel was not able to find sufficient allies to push through a worldwide bank levy or a global financial transaction tax. France and Germany are now working on a EU plan for a financial transaction tax.

Merkel wants to economize. The British have no other choice but to do so. China is allowing its currency to slowly appreciate against the dollar. And the Americans are expected to continue with their strategy of racking up new debt, at least for the time being. Obama wants more stimulus spending in Europe to ensure that the fragile economic recovery isn’t jeopardized, while Merkel is adamant that austerity measures are the correct response to the European debt crisis. Obama left the dirty work to others, such as US Treasury Secretary Timothy Geithner. “Without growth now, deficits will rise further and undermine future growth,” Geithner said. History shows the devastating consequences of a premature end to state stimulus spending, he argued, citing the example of the Great Depression.

In the US, the unemployment rate has so far refused to budge from 10 percent — a level that is unusually high for the US. The number of long-term unemployed is growing. Obama wants to create jobs, no matter what the cost, and he has little time to reflect on his setback on the global stage.

Source: Der Spiegel


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