OECD, Canada urge clear plans for cutting deficits

Mon Jun 7, 2010 4:24pm EDT
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By Jonathan Spicer and Rachelle Younglai

MONTREAL (Reuters) - Countries with big deficits must offer clear plans on how they will balance their budgets to maintain investor confidence and avoid problems seen in Europe, top economic policymakers said on Monday.

The warnings came after finance ministers and central bankers meeting in South Korea reached an uneasy compromise on Saturday on the speed at which budget cuts should be made to calm global financial markets rattled by the spreading debt crisis in Europe.

"Make sure that you give signals to the markets about fiscal consolidation," Angel Gurria, head of the Organization for Economic Cooperation and Development (OECD), told a conference in Montreal on Monday.

Gurria said it was imperative that countries announce their fiscal plans to avoid what happened with Greece's debt crisis, when uncertainty spurred investors to sell the country's bonds and drive its borrowing costs higher.

"Do we have to start now? No. Do we have to announce now? Yes," said Gurria, secretary-general of the OECD, a group of 31 countries that promotes democratic government and market-based economies.

Financial markets fear that other countries could suffer the same fate as Greece, which has already taken drastic measures to bring its fiscal house in order.

Greece has pledged to cut its public deficit by almost a third to 8.7 percent of gross domestic product this year. Germany has also announced plans to pursue savings in an effort to shore up confidence in the finances of the 16 nations that use the euro.

Policymakers from Canada, whose banks weathered the 2008 financial crisis without any government support, expressed concern about the continuing economic uncertainty in Europe.   Continued...