Daniel W. Drezner
The G-20 tries to stay relevant
I’m in Shanghai to discuss how the G-20 has been doing as the world’s "premier economic forum." As fate would have it, the G-20 actually opened its collective mouth in response to the market convulsions of this week: The Group of 20 leading economies pledged a “strong and co-ordinated” effort to stabilise the global economy ...
I’m in Shanghai to discuss how the G-20 has been doing as the world’s "premier economic forum." As fate would have it, the G-20 actually opened its collective mouth in response to the market convulsions of this week:
The Group of 20 leading economies pledged a “strong and co-ordinated” effort to stabilise the global economy in an attempt to calm tumbling equities markets spooked by fears of recession in the eurozone and a gloomy economic outlook in the US.
Bowing to pressure from investors to take action, finance ministers from the G20 economies said in a communiqué issued late on Thursday that they would stop the European debt crisis from deluging banks and financial markets, and take the necessary steps to bolster the eurozone’s rescue fund and assist banks to boost capital reserves in line with new global regulations. The statement followed a day in which the equity markets suffered some of the biggest falls since the collapse of Lehman Brothers in 2008, as investors rushed to safety in a widespread sell-off.
“We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required,” the group said in a statement. “We will ensure that banks are adequately capitalised and have sufficient access to funding to deal with current risks and that they fully implement Basel III along the agreed timelines.”
The G-20’s near-total muteness in the face of European sovereign debt convulsions had begun to raise some eyebrows — particularly as it was the G-7 economies rather than the G-20 that pledged to provide dollar liquidity to European financial institutions.
Unfortunately, if you read the actual communique, you discover… well…. let’s describe the statement as very optimistic about what the G-20 countries have done to promote both growth and fiscal rectitude.
One of the takeaways from my conversations so far in Shanghai has been a sense of disappointment about what the next G-20 summit in Cannes will accomplish. The Financial Times’ Chris Giles provides some background on the demise of the France’s grand ambitious for that summit:
In mid-February, G20 finance ministers gathered in Paris for what turned out to be a harbinger of the challenges that have beset the French G20 presidency ever since. The meeting was supposed to be routine, with finance ministers agreeing a set of indicators that might be used to assess whether their economies and policies fostered balanced global economic growth.
Far from France undermining the meeting with excessive ambitions, countries struggled to agree even the most basic steps to a more stable world economy.
A country’s current account surplus or deficit is the accepted measure of balance in its relations with other countries, but the Chinese arrived in Paris in intransigent mood. Their negotiators refused to let the G20 use the current account as an indicator of balance. After an all-night session, the absurd compromise China accepted was that countries were allowed to assess every component part of a country’s current account, but the term “current account” was banned.
That ended the French presidency’s lofty plans. From then on, limited goals became the order of the day, a shift that has been reinforced as the year has progressed.
I’d quibble a bit with Giles — any meeting that details indicative guidelines on macroeconomic imbalances is not gonna be a routine meeting. [Um…could you translate that last sentence out of bureaucratese, please?–ed.] Sorry, to rephrase — any meeting in which the G-20 points out that China’s trade surplus is part of the problem in the global economy is not going to be a smooth meeting.