MEXICO CITY (Reuters) - The G20 risks becoming a “paper tiger” unless countries follow through on commitments aimed at preventing another global economic crisis, Canada’s finance minister said on Sunday, fingering the U.S. “fiscal cliff” as the greatest risk.
Flaherty spoke to reporters as some of the world’s major economies looked set to miss agreed deadlines for reducing their fiscal deficits and for implementing new bank capital rules to safeguard against taxpayer bailouts the next time they run into trouble.
“It’s important to keep the G20 as an effective organization, that member countries keep their commitments. Otherwise it becomes a paper tiger,” Flaherty told reporters as he headed into a meeting of G20 finance ministers and central bankers in Mexico City that ends Monday.
Flaherty will propose to his G20 peers Sunday night that the group adopt a formal mechanism for holding countries to account for broken promises. He said the results should be made public.
“Yes, it does mean assessing the performance of G20 economies,” he said.
Flaherty has been an outspoken critic of his European counterparts for moving too slowly to fix their debt crisis, but he reserved his sharpest words on Sunday for Canada’s top ally and trade partner, the United States.
“In the near term, clearly the U.S. situation is the higher- risk situation because of the cliff on January 1, and the uncertainty before the election on Tuesday and a lame duck Congress and the other aspects of the U.S. legislative system,” he said.
Unless Congress can strike a deal quickly after the elections, about $600 billion in government spending cuts and tax hikes are set to kick in on January 1, threatening to push the American economy back into recession.
Canada would likely sink along with it, Flaherty said.
But he added he was deeply impressed at how the U.S. dealt with its banking crisis in the fall of 2008 and expects it to do the right thing again.
“I saw what the Americans are capable of doing in a crisis, grabbing the bull by the horns. I expect the American leadership — congressional, presidential, whoever it is — will deal with it,” he said.
Given the huge fiscal challenge facing Washington, the G20 may allow it more time to meet its G20 pledge in 2010 of halving its fiscal deficit by 2013. Flaherty said he will push for the U.S. to commit to that goal in “the medium term” and won’t squabble over a year or two.
Reporting by Louise Egan; Editing by Chizu Nomiyama