The G20 Summit in Toronto concluded with a declaration that the “advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016.” The non-binding agreement follows shortly after the Greek debt crisis, which in turn has sparked a crisis of confidence regarding other highly-indebted European nations, particularly Spain and Portugal.

In short, the G20 agreed to austerity. The thinking is that “the failure to implement [fiscal] consolidation where necessary would undermine confidence and hamper growth.”

The dissenting view, advanced by President Barack Obama, holds that sufficient economic growth cannot be realized without further government stimulus. Likely due to the president’s influence, the declaration acknowledges the risk that “synchronized fiscal adjustment across several major economies could adversely impact the recovery.” Yet, for all the reservations and qualifications in the declaration, it’s clear the G20 is willing to take that risk.

While non-binding, the U.S. has still agreed to the deficit reduction goal, and that agreement, combined with the Democrats’ waning political mandate, will make it difficult to pass another major stimulus bill. Though we haven’t yet seen major federal cuts to social welfare programs (i.e. ‘austerity’), Nobel Prize-winning economist Paul Krugman argues that “because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.”

According to the Center on Budget and Policy Priorities, states face severe budget gaps at least through 2012, and they point out that federal assistance has mostly been used up, with only about $40 billion remaining for 2011.

“States will continue to struggle to find the revenue needed to support critical public services for a number of years, threatening hundreds of thousands of jobs […] When all is said and done, states will have to deal with total budget shortfalls of some $260 billion for 2011 and 2012.”

Without additional government stimulus, the burden of economic growth will fall overwhelmingly on the private sector. The riskiness of this strategy is perhaps best illustrated by the fact that, in May, private employers only added 41,000 jobs – compared with an increase of 390,000 in government (mostly temporary Census positions). The official employment report for June isn’t released until Friday, but initial estimates put job gains in the private sector at a dismal 13,000.

But these numbers are, of course, pre-Toronto. The question is whether the deficit reduction programs will improve confidence in the private sector enough to stimulate growth and sustain the recovery.

Another Nobel Prize-winning economist, Joseph Stiglitz, says it will not.

“The austerity measures that are occurring in Europe are increasing uncertainty. The austerity measures that are occurring in Europe are leading to downgrades because business (finance) realizes that, if the government isn’t supporting these economies, growth is going to be lower, and, with growth lower, economic problems across the board are going to be greater.”

Stiglitz called for more stimulus, particularly investment in areas likely to yield high returns, which he identified as public technology, infrastructure and education. Likewise, he criticized current low-yield investments in military and war.

Barring further government investment, the forecasts from both Krugman and Stiglitz are grim. Stiglitz said there is a “very high risk” of a double-dip recession, while Krugman worries that we are in the process of entering a full-blown depression.