G20 leaders get to work on plan for faltering economy, undeterred by protests

TORONTO, Ont. – The world’s most powerful leaders have begun work at the G20 Summit on a long-term plan to stabilize the faltering global economy, undeterred by violent protesters determined to stymie their efforts.

Leaders flew in from around the globe Saturday to kick off a day and a half of discussions on financial regulations, budget cuts and economic stimulus.

They arrived to chaos around the heavily secured summit site in the heart of downtown, a think plume of smoke rising into the air as bands of roving militants dressed in black smashed shop windows, taunted police, and set at least four cruisers ablaze.

Hundreds of police in riot gear marched in waves through the streets, pounding their shields and clearing protesters far from the security zone.

Leaders were able to attend a working dinner at the regal Royal York Hotel where they were to make short presentations about how they would put their economies on a stable path.

They’re consumed with a riddle: how can deficit-ridden countries cut spending and clean up their books without undermining the fragile strength in their economies?

Prime Minister Stephen Harper and other leaders appeared to be making progress on their call for steep government spending cuts to restore fiscal order.

“On the economy, you rightly say we have a big deficit problem which we have to address. But of course we want to do it in a way that encourages growth, which is why we are focusing on spending reductions,” newly minted British Prime Minister David Cameron said Saturday.

“We are aiming at the same target, which is world growth and stability. But those countries with big deficits like ours have to take action in order to keep that level of confidence in the economy which is absolutely vital for growth.”

In the wake of the Greek sovereign debt crisis, Cameron and several European leaders have introduced harsh budget cuts in order to control his large deficit, and also buy the confidence of financial markets.

U.S. President Barack Obama has a different approach, however. He, too, has an enormous deficit, but wants to make sure the recession is completely stamped out and people are back to work before he starts tightening his belt. He has suggested having more stimulus at the ready, just in case the global economy takes another turn for the worse.

Both approaches have serious implications for the world. Belt-tightening in Europe means weaker domestic consumption and less demand for imports. But adding to an already-large deficit risks inviting the wrath of investors.

So the G20 asked the International Monetary Fund to put together some policy options that would get the global economy out of its funk. The IMF’s response was obtained by The Canadian Press, and it suggests countries that responses like Cameron’s are on the right path.

Indebted countries need to cut, but carefully, the report says. Cuts should be made to government spending in a way that doesn’t weaken the private sector. They shouldn’t be too deep at first, and ramp up when economic growth is more solid. And if governments have to raise taxes too, they should raise their sales taxes, not their income taxes, the IMF report advises.

Harper, Cameron and others recognize the need to keep stimulus in place until employment recovers, but they want to see detailed, solid plans for fiscal control in the near term.

The Toronto summit is unlikely to produce recovery plans for every country, but the G20 may be able to agree on targets for groups of countries.

Harper has recommended that advanced, indebted countries cut their deficits in half within three years, and put their debt loads on a downward track within five years – a proposal that is gaining considerable support among the G20 leaders. European Commission President Jose Manuel Earroso said that proposal will likely be accepted.

After wrapping up the G8 summit in cottage country north of Toronto earlier Saturday, Harper was convinced that the world leaders would be able to work out their differences on financial regulations and balanced growth.

“Given the nature of the events and the challenges that confront us, I have never seen a G8 more fundamentally united in purpose, more frank in its discussions,” he said. “And I think that will carry forward into the G20.”

He said there was broad agreement among the G8 leaders on the need to prevent any “cascading events” that could lead to another financial meltdown.

Harper won moral and financial support for his maternal-and-child health initiative despite controversy over his insistence that Canada will not let its money go to pay for abortions. The $5-billion committed was less than many had hoped for, but insiders say Harper never aspired to more than that, given the fiscal straits many of the G8 countries are in.

Several thousand protesters marched peacefully through the streets of Canada’s biggest city to protest a range of issues, from poverty to financial reform. Later, another group of several hundred moved into the financial districts where a smaller number of instigators turned violent.

Riot police armed with a tear gas cannon kept them away from the security zone before moving to clear the streets. Several protesters were wounded and a  newspaper photographer was shot in the backside by police with a rubber bullet. Another had an officer point a gun in his face despite identifying himself as a journalist.

The government has come under heavy criticism for spending $1.24-billion on the summits – more than its new commitment for the centrepiece maternal health initiative – including $930-million for security.

French President Nicolas Sarkozy didn’t do Harper any favours, boasting that he will spend “10 times less” at next year’s G8 summit in Nice, France.

The 43-point G8 communique admonishes Iran and North Korea for their nuclear activities and holds North Korea responsible for the sinking of a South Korean warship last march.

The countries have become international pariahs for their nuclear ambitions, oppressive regimes and inflammatory rhetoric.

“The world must see that what they spend on these weapons will not be the only costs they incur,” Harper said.

There was little new on the environment, other that to reiterate a commitment to cut global greenhouse gas emissions in half by 2050 and ensure economies are “climate resilient.”

Among other key points in the communique:

– Recognition that the situation in Gaza is “not sustainable” and a call for progress on the establishment of a State of Palestine.

– Continued support for African development.

– Reaffirmation of a commitment to support Afghanistan in its process of transition and development.

– A call on the government of Myanmar to allow for free and fair elections.

– Concern about the threat of terrorist groups and their increasing presence in Yemen, Somalia and across the Sahel, and the threat of growing links between terrorists, other criminals and insurgents.

Harper has frequently argued that the G8 deserves to live a long life, even though the G20 has clearly taken the helm in global economics. The prime minister repeated his assertion that it will always be beneficial for “like-minded” G8 countries to meet.

The G8 consists of Canada, the U.S., Britain, France, Germany, Italy, Japan and Russia.