This week’s meeting of the Group of 20 leading economies confronts pressing challenges: tackling indebtedness; supporting growth, strengthening international and financial institutions to promote global stability; and reforming financial regulation. However, all countries need to be alert to the unintended consequences of financial reforms. Both our governments have expressed concerns about the “Volcker rule”.
At the heart of the global crisis is the explosion of indebtedness in advanced economies. History tells us that recoveries after debt-fuelled crises tend to be slower than other recoveries. But the arguments for deficit reduction have become stronger over the past year.
The British government is taking the tough decisions needed to get a grip on its finances, tackling a budget deficit forecast to be the largest in the G20. Last year’s earthquake created an immense challenge for Japan’s economy. The Japanese budget for reconstruction spending is equivalent to 4 per cent of gross domestic product and is being financed without issuing deficit-financing bonds. The Japanese government is also determined to address the fiscal challenges of an ageing society, through reform of social security and tax.