VP Rehn said that the eurozone will slow its budgetary belt-tightening to help reinvigorate economic growth, highlighting a policy shift the United States has long been pressing for.
The pace of fiscal tightening around the globe is set to dominate talks by finance ministers and central bank governors from the Group of 20 advanced and emerging economies. Among the topics up for debate is whether or not to set numerical targets for debt and deficit reduction beyond 2016. But it appeared progress towards an agreement on a coordinated debt reduction plan to follow up on a 2010 agreement reached in Toronto would be hard to come by.
Rehn said when markets started refusing loans to some eurozone countries at sustainable rates in 2010 for fear they would not be paid back, the eurozone had no other choice but to cut borrowing and spending sharply. "In the early phase of the crisis it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces", Rehn said. "There was no choice. Decisive action was taken. Now, as we have restored the credibility in the short term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium term", he said, noting the United States was now being more aggressive in its deficit cutting than Europe.
Rehn noted that the European Central Bank was buying eurozone governments time to get their finances in order with its unambiguous pledge to do whatever it takes to steer the region through its debt crisis. "We structure efforts to put public finances in order more over time; it is rational policy-making at the current juncture", Rehn said.
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