Of all the challenges discussed at the G20 summit in Toronto, the largest and most pressing was government debt and related issues - unsustainable budget deficits and the need for tax increases and cuts in social programs, pensions and wages.
The leaders of the world's 20 largest economies were forced to acknowledge that the world needs to start sobering up after a 25-year debt-fueled bender.
Serious economists have long compared debt and alcohol. The cheap loans of the 1990s and the early 2000s were certainly no less intoxicating than wine, whisky or vodka. Many borrowers simply could not resist taking out more and more easy loans. They lost control, much like alcoholics who cannot stop after the first shot. The inevitable hangover came in the form of the global financial crisis, and it has lasted for over a year already.
Others go even further, calling the debt trap divine retribution for extravagant spending and the arrogance of unbridled consumerism. As proof, they point out that the words "debt" and "sin" are synonyms in Aramaic, the language spoken by Jesus and his disciples.
How simple it would be if debtors and sinners could find salvations in indulgences, like the final statements of G20 summits. But life is more complicated than that. Governments will have to reform their own spending and work together to reform the entire global financial system. They will have to learn to live within their means and borrow only when absolutely necessary. The debtors and sinners must repent. And there is only one way to repent in the global economy: to spend less.
But can they do it?
The severity of the sins (and the hangover) varies from country to country. Russia has been more fortunate than most thanks to its stabilization funds, which were financed by high oil and gas prices. It has the least debt (including sovereign, business and consumer debt) of the 20 leading economies.
Russia's debt-to-GDP ratio is currently 71%, according to the McKinsey Global Institute (MGI). The word's biggest debtors are Japan (471%), Britain (466%), Spain (366%), France (322%) and Germany (286%). The foreign debt of the United States is 296% of GDP, China's is 158% and India's is 129%.
This translates into hundreds of billions of dollars.
When a country's debt exceeds GDP several times over, this means it is borrowing much more than it takes in. The figures cited by MGI are stunning but by no means record-setting; they are still manageable. The countries in serious trouble are Iceland (1200%) and Ireland (700%).
Norway, Finland, Sweden and Denmark are the exceptions. Norway's GDP actually exceeds its foreign debt by 156%, Finland's by 57% and Sweden's by nearly 20%, even though they have tons of social programs and a generous safety net that Americans can only dream of. In these countries, government spending actually benefits the economy. This is a testament to Scandinavian socialism.
There comes a time, even in large economies like the United States, when a country's ability to absorb debt reaches a limit - when each borrowed dollar yields less and less return. According to U.S. statistics, each borrowed dollar yielded nearly 90 cents of profit in the 1960s compared to just 10 cents in 2010. The debt super-cycle has petered out; the time has come to start repaying our debts, as the G20 leaders affirmed in Toronto.
They have agreed that there should be common principles, but methods should be differentiated for and tailored to national circumstances.
The problem is that the United States, Japan, and especially Europe are overly optimistic about the prospects for economic recovery. The world's wealthiest countries are facing major demographic changes, and the generation of the 2030s will be forced to pay the debts incurred in the 2000s.
The population in Japan, Britain, France, and Germany is aging so fast (and their senior citizens are living much longer and better) that in a few years a single working citizen in these countries will have to pay for the pension of one or two retirees. Rapid economic growth is simply not possible in the face of a declining workforce, which means that debts will not be repaid quickly.
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The G20 comprises the 20 largest economies in the world, with the European Union counting as one member. The International Monetary Fund (IMF), the World Bank and the European Central Bank also participate in G20 summits. The group accounts for 85% of global GDP.
The opinions expressed in this article are the author's alone and do not necessarily represent those of RIA Novosti.
MOSCOW. (RIA Novosti political commentator Andrei Fedyashin)
