The euro-zone will slow its budgetary belt-tightening to help reinvigorate economic growth, European Union Economic and Monetary Affairs Commissioner Olli Rehn has said.
Rehn's comments are being viewed by some as an admission that fiscal adjustments linked to the troika programs in Europe are having a greater-than-expected impact on growth.
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, who are meeting today in Washington.
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 toward 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 euro-zone countries at sustainable rates in 2010 for fear they would not be paid back, the euro zone had no other choice but to sharply cut borrowing and spending.
The combined euro-zone budget deficit fell to 3.5% of gross domestic product in 2012 from 4.2% in 2011, pushing the 17 countries that share the euro into recession last year. This year, the deficit is set to shrink to 2.8%, which would represent a more than halving of the euro-zone budget shortfall from 6.3 and 6.2% of GDP in 2009 and 2010, respectively.
U.S. Treasury Secretary Jack Lew said this week that a rush towards fiscal austerity in Europe had worsened the economic situation in some countries, and there was a need to assess the impact of budget cuts on growth and employment.
