Stagnation on the Anvil?

There are some differences between the United States (uS) and Germany over the latter’s adherence to the principles of neo-mercantilism and “sound finance” (balanced budgets) in the process of coordinating the global economic recovery under the auspices of the G-20. But the G-20 summit at Toronto on 26-27 June did not witness any face-off, at least not in the open for all to see. And yet, the perils of rapidly moving towards fiscal austerity and of restructuring the Eurozone in the manner sought by Germany, both possibly leading to economic stagnation, are all too evident to be disregarded.

The declaration issued at the end of the summit, however, skilfully papered over the controversy between the “deficit hawks” and the “deficit doves”, Germany leading the former and the US heading the latter. In the wake of the so-called sovereign debt crisis in the Euro zone, the German government apparently stuck to its position that fiscal deficits and public debts, both as a proportion of gross domestic product (GDP), had to be slashed, but the US, while agreeing that “we cannot continue to borrow against our children’s future”, felt that too rapid a pace of fiscal consolidation might threaten global recovery. So the communiqué, while calling for a change of policy in the direction of reducing budget deficits and retiring government debt, added that the agenda be “tailored to national circumstances”, with “those countries with serious fiscal challenges” being called upon “to accelerate the pace of consolidation”.