G-20 Leaders Promise To Trim Deficits

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World leaders meeting in Canada over the weekend agreed to some strong medicine to cut their budget deficits. The move comes despite a warning from President Obama that precipitous cuts in government spending could choke off the fragile economic recovery.

RENEE MONTAGNE, host:

This is MORNING EDITION, from NPR News. I'm Renee Montagne. And I want to welcome you, Mary Louise Kelly, who's with us for the next month while Steve is away working on a book.

MARY LOUISE KELLY, host:

Thank you, Renee. I am delighted to be here. And we are kicking off this morning with economic news. Around the world, governments have increased spending over the last couple years to try to help their economies pull out of the global financial crisis. But this weekend, at the Group of 20 Summit in Toronto, leaders agreed to some strong medicine to deal with those expanding budget deficits. The move comes despite a warning from President Obama that big cuts in government spending could choke off the fragile economic recovery.

NPR's Scott Horsley reports.

SCOTT HORSLEY: President Obama says coordinated efforts by the G-20 countries over the last 18 months has succeeded in reversing an economic catastrophe and put the member countries on a path to recovery. But he warned that a recovery is still fragile and says it would be a mistake for governments that had been propping up the economy to rush to the exits all at once.

President BARACK OBAMA: In the United States and around the world, too many people are still out of work.�In too many economies, demand for goods and services is still too weak.�

HORSLEY: The president's call for continued stimulus found some support at the G-20 from leaders like Indian Prime Minister Manmohan Singh. But there's now a competing chorus of leaders whose primary concern is budget deficits. Canadian Prime Minister Stephen Harper cited the Greek debt crisis as a wake-up call for governments to stop spending beyond their means.

Prime Minister STEPHEN HARPER (Canada): Here is the tightrope that we must walk to sustain recovery. It is imperative we follow through on existing stimulus plans, most of which we committed ourselves last year. But at the same time, advanced countries must send a clear message that as our stimulus plans expire, we will focus on getting our fiscal houses in order.

HORSLEY: Leaders didn't highlight these disagreements in public. That might have rattled financial markets. Instead, they suggested it was only a difference in emphasis that led some countries to call for further stimulus, while others are enacting strict austerity measures.

U.S. Treasury Secretary Timothy Geithner notes that even as the Obama administration continues to push for more targeted government spending, the end is in sight for the big stimulus program approved last year.

Secretary TIMOTHY GEITHNER (Treasury Department): We've already, as you know, terminated and unwound most of the emergency financial measures. We are about to pass the peak of short-term stimulus in the United States. So looking forward over time, we are already starting to wind down and phase out those exceptional measures. And that's appropriate because, you know, we're a year into recovery now.

HORSLEY: Still, Geithner, like the president, says a year is too soon to declare victory over the recession. He insists the U.S. will not repeat the common mistake after past financial crisis of drawing government support too quickly.

Fred Bergsten, who directs the Peterson Institute for International Economics, says the administration's argument for stimulus spending now, followed by deficit reduction in the near future, might be more persuasive if more people believed the government would actually follow through.

Mr. FRED BERGSTEN (Director, Peterson Institute for International Economics): Where Obama has fallen down is that he has no credible program in place to deal with out budget deficit on a medium to long-term basis. We need a serious budget correction program here phased in as economic conditions permit, and that's Obama's vulnerability, both in terms of his domestic critics and his international critics.

HORSLEY: President Obama, who's promised to cut the deficit it half by 2013, insists that skepticism is misplaced.

Pres. OBAMA: For some reason, people keep on being surprised when I do what I said I was going to do.

HORSLEY: The president has taken some steps that hint at future deficit reduction, including appointment of a budget commission and a review of the nation's tax system, which he calls messy and unfair. The budget commission will not make its recommendations until after the November election. Mr. Obama said last night: Action on the deficit could quickly follow.

Pres. OBAMA: Next year, when I start presenting some very difficult choices to the country, you know, I hope some of these folks who are hollering about deficits and debt step up, because I'm calling their bluff.

HORSLEY: In the meantime, the president offers the same message to deficit hawks at home and abroad, saying fiscal health tomorrow depends on creating jobs and economic growth today.

Scott Horsley, NPR News.

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