G20 nations see different paths for securing recovery

REUTERS, Jun 25, 2010, 08.47am IST

TORONTO/WASHINGTON: World leaders aimed for a common target on Thursday of securing the economic recovery, but disagreed over how best to reach it.

With two days to go before the Group of 20 summit convenes in Toronto, officials tried to downplay differences between the United States and Europe over how quickly to shift from crisis-fighting mode to budgetary belt-tightening.

"That's the delicate balance that we need to try to strike this weekend," Canadian finance minister Jim Flaherty said.

His US counterpart, Timothy Geithner, said each country needed to decide what policy mix made sense to ensure both growth and fiscal responsibility.

"Our job is to make sure we're all sitting there together, focused on this challenge of growth and confidence because growth and confidence are paramount," he said in an interview with BBC World News America.

The G20 club of rich and emerging economies joined forces at the height of the global financial panic and poured an estimated $5 trillion into stimulus spending, emergency loans and bank guarantees, helping to ward off a global depression. 

The group still has a long and difficult to-do list, including forging consensus on new rules about how much capital that banks must hold, and making sure national financial regulatory reforms do not clash on a global scale.

The cost of fighting the financial crisis and recession left gaping holes in government finances, and Greece's debt troubles have focused Europe's attention on the need to shrink budget deficits before investors lose patience. 

European Commission president Jose Manuel Barroso said Europe could no longer afford to borrow and spend, and must repair budgets in order to rebuild confidence for growth. 

"It will not be a change overnight but there is no more room for deficit spending," Barroso told a news conference in Toronto.

The United States wants to make sure European countries - Germany, in particular - do not remove government supports too quickly because that could derail the recovery.

US stocks fell on Thursday on concerns over the durability of the economic rebound.

President Barack Obama, pushing Washington's pro-growth, line, said "surplus countries" - often code for Germany and China - must find ways to stimulate growth. But he also acknowledged that countries including the United States with medium- and long-term deficit problems would have to address them.

"Not every country is going to respond exactly the same way, but all of us are going to have responsibilities to rebalance in ways that allow for long-term, sustained economic growth," Obama said in Washington during an appearance with Russian President Dmitry Medvedev.

White House economic adviser Lawrence Summers, in an interview with Reuters, also stressed that growth would be key, but said it was not simply a matter of choosing between austerity and expansion.

"There obviously is an importance in having a growth strategy, but I think it's too simple to think of growth strategies only as running budget deficits or printing money," he said. 

In Europe, senior officials were in no mood to back down on their plans to cut spending.

Saying she expected "controversial discussions" in Toronto over Europe's budget priorities, German Chancellor Angela Merkel insisted Berlin would forge ahead with its biggest program of fiscal cutbacks since World War II.

European Central Bank president Jean-Claude Trichet dismissed the idea budget cuts could torpedo the fragile economic recovery that is taking hold.

"The idea that austerity measures could trigger stagnation is incorrect," Trichet told Italian newspaper La Repubblica, describing the German budget plans as "good" and repeating calls for more fiscal discipline in the 16-nation euro zone. 

Merkel, who aims to save 80 billion euros in the next four years, told ARD television that sustained growth could only be guaranteed through getting a grip on deficits and debt. 

"I and the EU will argue this position. There are others who are not yet so convinced of this exit strategy," she said.

The G20, which includes the world's biggest economies and two-thirds of its population, holds its summit in Toronto on Saturday and Sunday. It will be preceded by a meeting on Friday and Saturday of the G8, composed of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

Downtown Toronto's downtown banking district has seen business drop off as heavy security is mounted. Canadian police said on Thursday they had arrested the driver of a car near the meeting site who was carrying a chainsaw, crossbow and fuel containers.

BANKING REFORM

Economic policy has not been the only issue dividing the G20, which has also seen its unity tested by reforms to the banking sector.

European proposals for global taxes on banks and financial transactions have run into opposition from countries like Canada that say their banks are in good health. 

European countries are concerned that planned new rules requiring banks to set aside more capital may crimp lending.

Obama, meanwhile, hopes to sign off on rules to regulate finance within weeks as lawmakers raced to meet a Thursday deadline they had set themselves to agree on their own financial overhaul package.

Obama signalled on Thursday that China's move this week to relax the peg of its currency, the yuan, to the dollar may not be enough to shield Beijing from accusations that it is using the currency to gain an unfair trade advantage. 

"The initial signs were positive. But it is too early to tell whether the appreciation, that will track the market, is sufficient to allow for the rebalancing that we think is appropriate," Obama said.

The yuan has risen by about 0.4 percent against the dollar since Beijing's policy change - a significant step relative to its earlier freeze, but far less than the 25 to 40 per cent increase that some analysts say it needs to make to achieve fair value.

http://timesofindia.indiatimes.com/biz/international-business/G20-nations-see-different-paths-for-securing-recovery/articleshow/6088971.cms

"Cut versus growth" debate: Barack Obama is refusing to listen to reason on economic policy

Barack Obama is refusing to listen to reason on economic policy

President Barack Obama could learn from the old-fashioned German habit of saving money before spending it, argues Jeremy Warner.

 

By Jeremy Warner
Published: 8:17PM BST 24 Jun 2010

Comment on this

Barack Obama will meet other world leaders at the G20 summit Photo: AFP

Rarely has the dismal science of economics inflamed such passions. While the "cuts versus growth" debate has been building steadily for more than a year on both sides of the Atlantic, over the past week it has exploded into open international hostilities.

A compromised form of words will already have been agreed for the communiqué to follow this weekend's meeting of G8 and G20 leaders; the sherpas who do the preparatory donkey work for these stage-managed events will have ensured it.

 

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But behind the anodyne platitudes of any statement, the tensions have reached fever pitch. Gone is the co-operative consensus that, in adversity 18 months ago, brought G20 nations together to fight the downturn.

In its place lies a clear line of demarcation that almost exactly mirrors our own political debate in Britain over the economic consequences of George Osborne's Emergency Budget cuts. Yet though this debate masquerades as high intellect, it has about as much to do with economics as the outcome of the World Cup.

President Barack Obama, backed to some extent by Nicolas Sarkozy of France, wants economic stimulus to continue until the global recovery is unambiguously secure. In the opposite corner is Germany's Angela Merkel, now oddly aligned with Britain's new political leadership in thinking the time is right for fiscal austerity.

Like much of what Mr Obama says and does these days, the US position is cynically political. With mid-term elections looming and the Democrats down in the polls, the administration hasn't yet even begun to think about deficit reduction. Obama is much more worried by the possibility of a double-dip recession and the damage this would do to his chances of a second term, than the state of the public finances.

As it happens, the public debt trajectory is rather worse in the US than it is in Europe, yet Obama has adopted an overtly "spend until we are broke" approach in a calculated bid for growth and votes.

Part of the reason he can afford to do this is that the dollar remains the world's reserve currency of choice. For some reason, international investors still want to hold dollar assets, which for the time being gives the US government an almost limitless capacity to borrow. As we know, not everyone enjoys this luxury.

Mr Obama's cheerleader-in-chief in arguing the case for continued international deficit spending is the American economist Paul Krugman. This hyperactive Nobel prize winner has achieved almost celebrity status for his extreme neo-Keynesian views. Unfortunately, his frequent polemics on the supposed merits of letting rip public spending long since ceased to be based on objective analysis, and are instead argued as a matter of almost ideological conviction. He's as much a fundamentalist as the "deficit hawks" he mocks.

As it happens, nobody is asking America to axe and burn with immediate effect, though you might not think this to read Professor Krugman's ever more hysterical commentaries on the fiscal austerity sweeping Europe. But some sort of a plan for long-term debt reduction, other than blind reliance on growth, might be helpful.

Chancellor Merkel's approach looks equally political. With her own position under some threat, she has taken, with growing conviction, to preaching the teutonic virtues of fiscal discipline and long-term economic planning. Self-flagellation is judged to play as well with German voters as profligacy does with Americans.

These culturally very different approaches to politics and economics were brilliantly described by the German finance minister, Wolfgang Schauble, in a recent newspaper article. "While US policymakers like to focus on short-term corrective measures," he wrote, "we take the longer view and are therefore more preoccupied with the implications of excessive deficits and the dangers of high inflation… This aversion, which has its roots in German history, may appear peculiar to our American friends, whose economic culture is in part shaped by deflationary episodes. Yet these fears are among the most potent factors of consumption and savings rates in our country."

Just as America takes its popular understanding of economic catastrophe from the Great Depression of the 1930s, for Germans it is the great inflations of the inter- and post-war years, the first of which destroyed middle-class savings and contributed to the rise of political extremism.

There are no rights and wrongs in this debate, but by implicitly criticising Germany for not doing enough to stimulate domestic demand, Mr Obama displays his usual lack of understanding of foreign affairs – or rather, perhaps deliberately chooses to dismiss perfectly legitimate alternative approaches to the same problem.

Few countries did as much as Germany to sustain economic activity in the downturn. What's more, despite the rhetoric of deficit reduction, its fiscal stance remains expansionary throughout the remainder of this year and is only mildly negative next year. The goal of returning to balanced budgets by 2015/16 is entirely reasonable given the demands and constraints of an ageing population, is in line with the same ambition set by George Osborne this week, and can in any case be suspended if the economy begins to shrink again.

As Mr Schauble has repeatedly pointed out, seeking to engineer greater domestic demand by taking on more government borrowing is, for Germany at least, counter-productive, for Germans do not feel confident in their spending unless cushioned by adequate savings. Some might think these the sort of old-fashioned virtues that need to be relearnt in more profligate advanced economies, such as America and Britain.

I don't want to push the argument too far, for there is no doubt that by exporting debt to its neighbours, Germany played a central role in the fiscal crisis that has engulfed the fringe nations of the eurozone. There is no obvious answer to these inherent fault lines within the European monetary union, other perhaps than a return to sovereign currencies.

But to expect Germany to become less competitive so that the Greeks and Spaniards can be more so is absurd. It's a bit like arguing that elite marathon runners should slow down to allow others to catch up.

In berating others to carry on spending, Mr Obama is being neither politically wise nor economically sound. He should instead be attending to his own back yard by mapping out some sort of credible, long-term plan for returning the US to balanced budgets.

David Cameron is going to find himself ahead of the curve among the G8 this weekend, for his own plans for fiscal retrenchment are, if anything, rather more advanced and detailed than even those of Germany. In Britain, only the Labour Opposition and its supporters still think this the wrong approach – but given they were the ones that got us into this fiscal mess in the first place, they would do, wouldn't they?

http://www.telegraph.co.uk/finance/economics/7852801/Barack-Obama-is-refusing-to-listen-to-reason-on-economic-policy.html

G20: leaders assemble as divisions emerge on whether to cut or spend

The leaders of the world's biggest economies will assemble in Toronto this weekend for a G-20 summit, amid growing tensions on how best to head off a second global recession.

 

Published: 9:26AM BST 25 Jun 2010

David Cameron arrives in Canada for Friday's G-8 summit and this weekend's G-20 summit.

The G20 summit, which starts in the Canadian capital on Saturday, comes as the Obama administration insists that governments' policies must focus on bolstering the recovery, rather than immediately tackling deficits.

“We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth,” US Treasury Secretary Tim Geithner argued in an article in the Wall Street Journal. “Without growth now, deficits will rise further.”

 

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By contrast, David Cameron arrives at his first major international summit days after laying out a Budgetthat put tackling Britain's record deficit at the heart of his new government's policy. Mr Cameron and his Chancellor, George Osborne, argue that a failure to reduce the deficit poses an even bigger threat to the recovery, as it will risk a Greek-style debt crisis.

The Prime Minister played down the tension with Obama, saying "this weekend isn’t about a row over fiscal policy. We all agree about the need for fiscal consolidation."

The policy headache facing governments isn't helped by the lack of consensus among experts over whether further stimulus or deficit reduction is what's required. Nobel Prize-winner Paul Krugman has warned that rapid cuts in spending and tax rises will tip the world back into a global recession and repeat the mistakes of the 1930s.

G20 summit: Leaders target bankers

G20 summit: Leaders target bankers
World leaders will agree unprecedented global restrictions on pay and bonuses for bankers at the G20 summit in London.

By Andrew Porter, Robert Winnett and Christopher Hope
Last Updated: 12:07AM BST 02 Apr 2009

In future, bankers will be prevented from receiving multi-million pound cash bonuses for speculating on the stock market.

Their remuneration will instead be based on the risks they take over the long term. Bankers deemed to be making risky investment decisions will only be paid in shares that can be cashed in after several years.

Sarkozy and Merkel demand tough market curbs The multi-million-pound bonuses paid to bankers have been blamed for encouraging them to take the "reckless" decisions that triggered the global financial crisis.

The Daily Telegraph has learnt that the remuneration deal was thrashed out over the past few days following intensive diplomatic efforts by Nicolas Sarkozy, the French President, and Angela Merkel, the German Chancellor. The measure did not appear in a draft communiqué that was leaked at the weekend.

The European leaders were understood to have pushed for an exact monetary limit on banking pay but were prepared to sign up to the new, strongly-worded agreement.

Regulators in each of the G20 countries will impose the new restrictions, which cover both private banks and those owned both wholly and partially by the state.

The agreement will be the most eye-catching part of the communiqué, which is expected to be released by G20 leaders at the summit in London's Docklands on Thursday.

On Wednesday, violent clashes took place in the capital between police and anti-capitalism protesters ahead of the talks. In the City of London, a branch of Royal Bank of Scotland was attacked and looted as violence flared during a 6,000-strong protest, which resulted in 32 arrests.

A man died after he collapsed at the scene of protests near the Bank of England last night.

A protester called the police after they saw the man collapse and stop breathing in St Michael’s Alley, near Birchin Lane just off Cornhill shortly before 7.30pm.

Two police medics broke through the cordon and carried the man to a clear area in front of the Royal Exchange where they gave him CPR.

The ambulance arrived six minutes later and took him to hospital just before 8pm, where he was pronounced dead.

A Scotland Yard spokesman said: “The officers took the decision to move him as during this time a number of missiles - believed to be bottles - were being thrown at them.”

It is believed that the man died of a heart attack.

The Directorate of Professional Standards at both the MPS and City of London Police have been informed. The IPCC is also being told.

Meanwhile, frantic negotiations between the teams of G20 officials continued and there were more than five draft versions of the final agreement in circulation.

Other measures to rein in offshore tax havens, regulate hedge funds and offer new trade credit to the developing world are also expected to be announced.

The International Monetary Fund will increase its funding by hundreds of billions of dollars. The money will be used to bail out countries whose economies face financial meltdown.

However, critics of the G20 summit were expected to point to the lack of a new co-ordinated fiscal stimulus package, something that Gordon Brown, the Prime Minister, and President Barack Obama had originally hoped would be included.

Mr Brown and Mr Obama said that the new financial system to emerge from the crisis would have to be different from that which led to the economic collapse of last year. However, both leaders expressed optimism that the crisis could be tackled this year. Mr Obama urged the world not to "short change the future" because of fear over the current economic crisis. At a joint press conference with Mr Brown at the Foreign Office, the President said people needed to plan for a recovering economy.

He said: "Despite the current hardships, we are going to get through this. So you should plan sensibly in anticipation that this economy is going to recover.

"Young families are going to want to buy new homes and sooner or later that clunker of a car is going to wear out, so people will buy new cars. I would ask people to have confidence about their futures and that may mean in some cases spending now as investments for the future. Don't short change the future for fear of the present."

In words that echoed Franklin D Roosevelt, the US president at the time of the Great Depression, Mr Obama said: "Basing decisions around fear is not the right way to go."

Mr Brown also called for global action. "It will get worse if we do not act. The option of doing nothing is not available to us," he said. "I believe that the degree of international co-operation that we can get will determine how quickly all our economies can recover.''

Downing Street was confident that a G20 agreement was close following public posturing from the French and German governments.

Earlier this week, Mr Sarkozy, the French president, threatened to walk out of the summit if firm commitments were not made.

On Wednesday, he staged a joint press conference with Angela Merkel at which they insisted there were "red lines" which were not negotiable.

The two European leaders have called for tough global regulation of the financial system, rather than vague pledges.

Mrs Merkel said there was no option to go back for a third summit if decisions proposed in Washington at the end of last year resulted in only a vague statement of intent in London.

The German Chancellor said: "The day after tomorrow will be too late. The decisions need to be taken now, today and tomorrow." She added: "We should not be content with generalisation ... Speculation must be regulated and there must be a framework for pay at the banks."

Mr Sarkozy also said that remuneration paid to traders must be controlled. "It's not a question of morality, all of this is a red line. The problems must be clearly resolved."

British officials believe that the emerging bank pay agreement will help temper European concerns.

The Prime Minister will hail the move as the first time that governments have agreed to regulate the risk-and-reward culture that many leaders blame for the banking collapse.

The G20 leaders will agree to sign up to a new set of principles which can curb, if not cap, bankers salaries. The aim is to ensure that there is no chance that the system of remuneration can ever get out of control again.

It is understood that a report by Lord Turner, the chairman of the Financial Service Authority, which made recommendations on bankers pay, will help to guide the new principles that are also endorsed by the Financial Stability Forum, a global coalition of regulators and watchdogs.

In future, each bank will have to judge the risks taken by individual traders or executives. Only those taking average, or below average risks, will receive cash bonuses.

Those taking more risk, will be paid in shares or other financial instruments which cannot be cashed in for several years. Banks could only circumvent the rules by setting aside large amounts of extra capital to reflect the extra risks being taken.

The French president, threatened to walk out of the summit if firm commitments were not made.

On Wednesday, he staged a joint press conference with Mrs Merkel at which they insisted there were "red lines" which were not negotiable.

The two European leaders have called for tough global regulation of the financial system, rather than vague pledges.

Mrs Merkel said there was no option to go back for a third summit if the measures proposed in Washington at the end of last year resulted in only a vague statement of intent in London.

The German Chancellor said: "The day after tomorrow will be too late. The decisions need to be taken now, today and tomorrow."

She added: "We should not be content with generalisation . . . speculation must be regulated and there must be a framework for pay at the banks."

Mr Sarkozy also said that remuneration paid to traders must be controlled. "It's not a question of morality, all of this is a red line. The problems must be clearly resolved."

British officials believe that the emerging bank pay agreement will help temper European concerns.

The Prime Minister will hail the move as the first time that governments have agreed to regulate the risk-and-reward culture that many leaders blame for the banking collapse.

The G20 leaders will agree to sign up to a new set of principles which can curb, if not cap, bankers' salaries. The aim is to ensure that there is no chance that the system of remuneration can ever get out of control again.

Mr Brown said: "We are within a few hours, I think, of agreeing a global plan for economic recovery and reform.

"Of course it is difficult and of course it is complex – we have a large number of countries – but I am very confident that people not only want to work together but we can agree a common global plan for recovery and reform."

It is understood that a report by Lord Turner, the chairman of the Financial Services Authority, which made recommendations on bankers' pay, will help to guide the new principles that are also endorsed by the Financial Stability Forum, a global coalition of regulators and watchdogs.

In future, each bank will have to judge the risks taken by individual traders or executives. Only those taking average, or below average risks, will receive cash bonuses.

Those taking more risk, will be paid in shares or other financial instruments, which cannot be cashed in for several years.

Banks could only circumvent the rules by setting aside large amounts of extra capital to reflect the extra risks being taken.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5091306/G20-summit-Leaders-target-bankers.html

G20 summit: Barack Obama set for clash with European and Asian export powers

G20 summit: Barack Obama set for clash with European and Asian export powers

• President warns protectionist exporters • Germany defies call to change outlook • America resumes Russia relations

By Ambrose Evans-PritchardLast Updated: 11:27PM BST 01 Apr 2009

Barack Obama does not see eye to eye with Angela Merkel over exports Photo: PA

US President Barack Obama has issued a veiled warning to the export powers of Europe and Asia that they risk setting off a protectionist backlash unless they do more to restore global demand.

"If there is going to be new growth it can't just be the United States as the engine. Everybody is going to have to pick up the pace," he told a joint press conference with Gordon Brown before the G20 summit.

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"Our goal is simply to make certain that each country, taking into account its differences in economic circumstances and political culture, is doing what is necessary to promote economic growth. The US will do its share but in some ways the world has become accustomed to the United States being a voracious consumer market, the engine that drives a lot of economic growth worldwide," he said.

"In the wake of this crisis, we have to take into account our own deficits. To the extent that all countries are participating, that strengthens arguments we make in our respective countries about the importance of world trade, the sense that this isn't a situation where each country is only exporting and never importing, but rather that there's a balance," he said.

While the comments were couched in diplomatic language – and included praise for "significant packages" by the EU, Japan, and China – they reflect irritation in Washington that US fiscal stimulus is leaking out to "free rider" countries. The US budget deficit may reach 13.7pc of GDP this year.

The current US Congress is the most protectionist in half a century. It has already inserted a "Buy American" clause in Mr Obama's fiscal package. It is unclear how far Mr Obama will go – or can go – to restrain the populist mood.

A 530-page report by the US Trade Representative this week reads like an indictment of half the world, with a long chapter on methods used by China to rig its internal market. China had $401bn (£278bn) surplus over the last year.

But it is Germany that has emerged as the villain in this G20 drama because of its attacks on the "crass Keynesianism" of the Anglo-Saxon powers and its willingness to let German GDP contract at a brutal pace despite having ample firepower in reserve.

Chancellor Angela Merkel has blamed the crisis on US "casino capitalism", ignoring the role of massive trade imbalances in generating the deeper economic turmoil. Germany has a surplus of $224bn, or 5.3pc of GDP.

She has given the impression that Germany hopes to carry on running export surpluses for ever as if nothing had happened. "The German economy is very reliant on exports; this is not something you can change in two years. It is not something we even want to change," she said.
Asia has been quicker to join the stimulus coalition. Japan's premier Taro Aso is preparing a third fiscal package, allegedly worth $200bn over three years. China has pushed through stimulus of nearly $600bn.

Mr Aso said Japan had learned during its "lost decade" that pump-priming can prevent a downward spiral at key moments. "There are countries that understand the importance of fiscal mobilisation, and there are some other countries that do not, which is why I believe Germany has come up with their views," he said.

Western Europe may have blundered by failing to offer Mr Obama more support for his agenda. The new president already views the region as an inhospitable place, judging by his book Dreams of My Father. Europeans have not done much to win him over.

Mr Obama has instead hit the "reset button" in US relations with Russia, holding a one-on-one meeting on Wednesday with President Dmitry Medvedev.

The likely outcome of this G20 will be a US strategic tilt away from Brussels and the Nato alliance.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5091141/G20-summit-Barack-Obama-set-for-clash-with-European-and-Asian-export-powers.html

G20 Summit: an easy guide to judge its success or failure

G20 Summit: an easy guide to judge its success or failure

Leaders are likely to declare the G20 summit a triumph today, but what will that mean? Economics Editor Edmund Conway offers some answers.

Last Updated: 6:35AM BST 02 Apr 2009

Let's kick off with a few predictions. At half past three today, Gordon Brown will end the G20 summit with a grand declaration of unity in the face of the worst economic and financial crisis since the 1930s. Despite the threat of temper tantrums, no leader will storm out – not even Nicolas Sarkozy.

This might disappoint protesters and, dare I say it, journalists, some of whom rather wish things would descend into disaster. But whatever their rhetoric, the leaders meeting in London today know that a breakdown in the G20 would be the surest way of consigning the world to a depression far greater in scale and misery than the 1930s. Or at least one hopes they do.

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But how will we be able to judge their success or failure? Here are seven ways to decode the most important heads-of-state summit in decades.

1, Don't expect an apology
It wouldn't be such a bad idea, in the face of social unrest that stretches from the doors of the Bank of England to the streets of Eastern Europe, for our leaders to admit they made mistakes and were partly responsible for the crisis. Done under the G20 banner, it wouldn't implicate one government more than another. But it seems unlikely, given the widespread recrimination throughout Europe towards the Anglo-Saxon economies, whom most outsiders blame for causing the crisis.

However, such sentiments are misplaced. The initial seeds for the crisis may have lain in the behaviour of sub-prime mortgage brokers and the financial engineers who sold on the associated debt, but practically no one is innocent when it comes to the crisis that has since ensued.
Britain and America may have been guilty of borrowing too much and building up unsustainable budget deficits, but Germany, Japan and China were guilty of generating massive current account surpluses by pumping out goods around the world. Now, both sides are suffering: the worst plunge in economic output this year will be felt not by the US or UK but by Japan and Germany. The imbalances in their economies were even worse than those in the Anglophone world, but the fact that they were "good" current account surpluses rather than "bad" deficits disguised their lethal nature.

An apology would not bring the crisis to an end; but it might help stem at least some of the unrest that is sure to escalate in the coming months.

2, Ignore Sarkozy; watch Merkel
The French president has hogged most of the headlines in the run-up to the conference, threatening to walk out unless his suggestions for a new international financial regulator are adopted. But his pledge is an empty one: the G20 has already indicated that it wants to strengthen international financial oversight, meaning that Sarkozy is already pretty certain of being able to declare victory on this front.

Better, then, to pay attention to the German Chancellor. Europe's biggest economy is now all but isolated in its view that the solution to the crisis is neither more borrowing nor lower interest rates. Everyone, from the United States and Australia to Japan and China, has pledged to spend more to prevent the recession from deepening. Even those who cannot afford that much extra – the UK, for instance – have agreed that more spending is the way forward. The only nation to stand forcefully in the way of an accord on fiscal stimulus is Germany, supported from the back by Italy and Russia, while France wavers moodily behind them.

This intransigence is dangerous. There is a very real possibility that, just as happened in the 1930s, the world will be torn into two separate economic blocs: those that attempt to reflate their economies and those that choose to liquidate, to sit back and to let destruction take its course. The latter is the path that the United States took in the 1930s, and the direction the Germans seem intent on travelling. So listen carefully to Merkel's press conference: is her rhetorical resistance to the need for a fiscal boost wavering?

3, Don't be fooled by the International Monetary Fund 'triumph'
One of the likely headlines tonight will be the decision to donate something like $500 billion to the IMF. This ought not to be downplayed: without the IMF to support them, certain countries in Eastern Europe and beyond would have defaulted on their loans, and seen their governments collapse. But to claim this as a victory is simply not true: it was effectively agreed at the finance ministers' summit last month, and has merely been held back in case the rest of the summit was a complete disaster. In short, the more noise is made about the IMF, the more likely it will be that the G20 has flopped.

4, Regulation, regulation, regulation
Politicians and commentators may have pitched the summit as a battle between those who believe countries should pump more cash into their ailing economies and those who want instead to remodel the shape of the world's financial system. In reality, the distinction is misleading. All major countries are in favour of eradicating the weaknesses in the system that contributed to this mess.

So, if you are after some tangible sign of progress from the summit, check out what agreement there has been on regulation. Nothing will change overnight – after all, any policies need to be ratified by national governments – but an agreement at the G20 may well signal the beginning of the end for unregulated finance: this could be the meeting that flicks the switch that whirs the wheel that turns the cog that swings the hammer into the hedge fund industry. Also, an agreement on more transparency in tax havens would undermine the argument that any further regulation will only drive the smartest and best minds overseas.

5, For Obama, the real story is not the G20
Don't get me wrong – the President of the United States is as determined as Gordon Brown and most of his G20 counterparts to make a success of the summit. But the trip to London is double-edged: on the one hand, there's the G20; on the other, there's the opportunity for bilateral meetings with his major counterparts around the world.

President Obama is tentatively but most definitely feeling his way towards a new set of global alliances that will shape economic and diplomatic life for decades. Should the G20 really flop, either publicly or privately, the US will embark on Plan B – cementing ties with individual nations. As such, the real story yesterday was not the Brown/Obama press conference, but the US President's meeting with Russian president Dmitry Medvedev, and his agreement to visit China later this year.

On a related point, watch closely to see what the Chinese authorities say about the dollar: the Asian tiger has already questioned the US currency's position as the world's reserve currency. Might it make an unexpected push to instill this into the final statement?

6, Don't expect any big surprises out of the communique
The concluding announcements from big summits are usually drafted weeks, if not months, in advance by the teams of "sherpas", who advise the ministers and heads of state. The most the G20 can hope to achieve in today's four and a half hours of meetings is to elide a few phrases here or add a couple of numbers there. The real giveaway will be the mood of the heads of state in their press conferences: should any of them hint at dissatisfaction with the meeting's conclusions, that's the story.

7, We do need a global agreement on resolving the crisis, but it probably won't arrive today
It is plain wrong to suggest, as some have, that nothing ever comes out of these big international summits – you only have to look back to the G7 meeting in Washington last October, when the world's major leaders agreed on principle to bail out their stricken banks and safeguard depositors. Things didn't change overnight, but the agreement laid down the conditions that helped the financial system avoid outright collapse. This radical agreement was sealed in the face of a crisis, in the weeks following the collapse of Lehman Brothers. If the world is not to slide into a protectionist spiral, we need a similar agreement on how to tackle the economic, as opposed to financial, crisis.

The real question is whether the sense of urgency is as great as it was in those weeks in October. Leading economic institutions predicted this week that 2009 will see the worst global recession since the Second World War, and the biggest collapse in world trade since the 1930s. Whether that will be enough to galvanise any kind of agreement remains to be seen.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5092470/G20-Summit-an-easy-guide-to-judge-its-success-or-failure.html

China sees opportunity in failure

China Business
Mar 19, 2009



China sees opportunity in failure
By Antoaneta Bezlova

BEIJING - Differences between the United States and Europe over how to restore global economic growth have given rise to speculation here on whether a failure to agree on a grand strategy at the upcoming Group of 20 (G-20) summit might create room for China to assert its national agenda.

"It is well remembered that the collapse of international talks at the 1933 London summit laid the foundation for the US's consequent emergence as a dominant financial power," said an editorial in the China Business News at the weekend.

"With the US-based financial system facing unprecedented challenges, could a failure at the upcoming London meeting serve



to advance China's aspirations for the creation of a new financial order?" the editorial asked.

Officially at least, China has declared low expectations regarding the outcome of the April 2 summit of the leaders of the G-20 countries. Wu Xiaoling, former vice governor of the People's Bank of China, told a financial conference in Shanghai at the weekend that the summit was unlikely to bear much fruit.

"It is impossible for any concrete agreements to be reached at the G-20. We should not put much hope on it," Wu said. "That's why we should have our voice heard."

Low expectations aside, Beijing has invested substantial effort in preparing for the global summit. Officials from the ministries of Commerce and Finance, the Central Bank and the banking regulatory commission have been dispatched to London since early March to forge and present a united strategy at the meeting.
Divided into working groups, they have been laying the ground for China's participation in sweeping talks, including reform of the International Monetary Fund (IMF) and other multilateral bodies, the size and timing of coordinated stimulus measures and the inception of a global regulatory system.

Indications of China's stance came during the weekend's meeting of the G-20 finance ministers' preparatory to the April 2 summit. Finance Minister Xie Xueren called on the global community to accelerate the reforms of international financial institutions and to build a new financial system, which is "fair and square, compatible and orderly".

Speaking from Shanghai, Wu Xiaoling echoed Xie's statement, saying developed nations should shoulder greater responsibility in protecting the interests of developing countries and give emerging economies more power in international bodies like the IMF.

"The IMF should increase the share from emerging economies, and treat all members equally," Wu said. "A new set of rules should be set up to regulate the world economy, with a focus on global superpowers."

The meeting of the G-20 finance ministers revealed also the scope of existing disagreements between the US and Europe. US officials, backed by Britain and Japan, are seeking to line up global support for more government-backed stimulus measures.

European nations, though, are wary of such debt-fueled stimulus measures and have pushed for more regulation and oversight to prevent further deterioration of the global economy.

The split between the US and Europe and the deepening economic downturn have provided a distraction from the debate about China's role in creating global economic imbalances that had dominated economic circles in late 2008.

But to China's chagrin, the divergence of opinions has also pushed the summit agenda towards discussing an increase in financing to the IMF, instead of debating the much-anticipated reform of the financing body.

"What should have been the core issue of the summit - how to reform the IMF - has now been left by developed nations to fall by the wayside," Xu Mingqi, economist with the Shanghai Academy of Social Sciences, told the financial conference.

Xu argued that instead of debating how to redistribute voting rights inside the body, world leaders should decide on the creation of a monetary mechanism to be applied to countries issuing hard currencies that would work to protect the interests of global investors.

A similar concern was voiced by Chinese Premier Wen Jiabao during his once-a-year meeting with the press last week. Wen said he was "worried" about the safety of China's assets in the US, and asked Washington to provide guarantees that it would protect their value.

China is the largest holder of US Treasury bonds. As of December 31, the volume of the country's investments had reached US$696 billion.

While China also grapples with the implications of slumping global demand for its export-driven economy, Beijing sees the crisis as an opportunity to advance its own priorities of raising the country's global profile and acquiring more say in international financial institutions.

Over the past few months, Beijing has taken the first steps towards transforming its controlled, partially convertible currency into a regional currency by pushing loans and some trade settlements in yuan across Asia.

At the same time, China has said that it would use its huge foreign exchange reserves to contribute to the bailout fund of the IMF on the condition that its share of voting rights in the international body is increased.

Currently, the voting rights of the BRIC countries, namely Brazil, Russia, India and China, in the IMF are 9.62% of the total, together accounting for about half of the voting rights that the US holds.

Some Chinese economists have cautioned against committing any funds to the IMF before the removal of the US's right to veto in the IMF.

"Even if China decides to inject a large sum of money, it is pointless to increase its weight in the international financial organization," Yu Yongding, president of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, told the China Daily. This is because the US holds veto rights in the decision-making process of the IMF.

But other experts see more room for advancing China's priorities by cooperating directly with the US. "In solving the crisis I would place more hope in the G-2, or the US and China, rather than in the G-20," said Liu Yuhui, economist at the Institute for Financial Studies of the Chinese Academy of Social Sciences.

"I expect few concrete results to emerge from this G-20 meeting," Liu said. "Currently, the IMF is an institution of rigidly allocated financial power and it would take a long time to change the status quo."

(Inter Press Service)


http://www.atimes.com/atimes/China_Business/KC19Cb01.html

In absolute terms, the G20 summit already looks unpromising

G20: a damp squib won't be the end of the world

Posted By: Edmund Conway at Mar 30, 2009 at 12:50:26 [General]
Posted in: Politics , Business , Economic Pulse
Tags:View More G20, global recession, Gordon Brown, london, Obama, summit

I've written enough times - before the finance ministers' summit for instance - that we can expect little in the way of tangible economic agreements out of the G20. This would be expecting too much (knowing what today's bunch of politicians are and aren't capable of). The world's financial system has collapsed; the very foundations of both it and the precepts that underpin global capitalism have come under question. These kind of disturbances cannot be undone or repaired overnight.

And so it is hardly a surprise that it is now dawning on politicians around the world that, in terms of actual output, the summit in London this week will be something of a damp squib. The draft communique has been leaked and looks dismally familiar: refutations of protectionism, calls for more free trade, rather blithe commitments to rescue packages for both their economies and their financial infrastructure. In fact, the phrases that have wafted out sound remarkably similar to the mantras Gordon Brown has been emanating around the world on his recent tour (for instance, a "global crisis requires a global solution"; or "we are determined to restore growth now, resist protectionism, and reform our markets and institutions for the future" or "we are determined to ensure that this crisis is not repeated.")

I can confidently predict that on the day the politicians and officials - keen to avoid the accusation of inaction or incapacity - will pepper the press with news of breakthroughs: a new $500bn plus donated to the International Monetary Fund, for instance, and further clampdowns on tax havens, to take two. But this will be done (perhaps successfully) in order to divert attention away from the lack of concrete results.

However, before one declares this a failure before it has even begun, it is worth bearing a couple of things in mind - however cynical one is. First, the real story of a big summit like this is rarely predictable. Most big financial or political meetings are preceded by plenty of debate and speculation over their likely outcome. The eventual story is often quite different. And by eventual story, I mean not the headlines that come out the day afterwards but the extent to which it shapes policy in the following weeks and months, the reaction in markets as time goes on, the impact on currencies and the effect on economic data - in short the historical significance of the summit.

Second is the fact that in the case of a major summit like this success or otherwise should be defined not in terms of concrete policies but in terms of the mood music surrounding the event. The 1933 London conference was a disaster because too many politicians either didn't turn up or showed a disappointing apathy about actually getting round the intractable problems of the day (which largely revolved around the gold standard). So as sceptical as I am (and as I am sure you are) about the bon mots from Brown, President Obama et al about unity being essential, I believe this is one of those rare moments when a show of unity is extremely important - in both economic and political terms.

Having resigned myself to the fact that it is too late to come up with a decent, comprehensive plan either to bail out struggling nations or to repair and reshape the financial system, I personally will judge the relative success of the summit on whether the leaders seem to be singing from the same hymnsheet. If they aren't, it is truly time to get worried, for it harks back to the 1930s when different blocs of nations took radically opposing economic strategies for escaping depression, with the result that for some countries the downturn was far nastier than it should have been.

However, in absolute terms, the summit already looks unpromising. The fact is that there are some important concrete agreements the G20 should be trying to achieve that seem simply to have been forgotten. For a more detailed guide of the kind of things they could or should be doing, and why, check out Willem Buiter's blog and Simon Johnson's here and here (as the former IMF chief economist his analysis over the next week or so will be particularly invaluable and important).

My plan over the next week, along with the Telegraph's other writers, is to try to look beyond the excitement surrounding both the visit of President Obama and the glitz surrounding the summit - not to mention the small news stories that flow out of it - and to try to determine precisely what this means for the world economy in the long-run.

http://blogs.telegraph.co.uk/edmund_conway/blog/2009/03/30/g20_a_damp_squib_wont_be_the_end_of_the_world

Only a united front at the London G20 can save the world from ruin

Only a united front at the London G20 can save the world from ruin
Industrial production is collapsing faster than during the Great Depression. Social and political devastation will not be far behind, unless the G20 can heal global divisions, writes Ambrose Evans-Pritchard.

Ambrose Evans-PritchardLast Updated: 7:02PM GMT 28 Mar 2009
Comments 89 Comment on this article

By the time world leaders gathered to vent their spleens at the London Economic Conference in June 1933, the Slump had already done its worst. Catastrophic policy errors – tight money – had caused the 1930-31 recession to metastasize into debt deflation. Hitler had been let into government with three cabinet seats, enough to give him the Prussian police and Reich interior ministry. It was all he needed.

Any country that tried to reflate alone was punished by creditors. Most stuck grimly to liquidation. Europe and America undercut each other with beggar-thy-neighbour moves on trade and gold. The surplus countries refused to play their part in restoring demand – just as they refuse today, either because they will not (Germany and the Netherlands, who between them have a surplus of $294 billion) or because they cannot for structural reasons (China, $401 billion).

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It was impossible for deficit states to fill the breach, so the system folded on itself. Today, the biggest deficits are: the US ($673 billion), Spain ($155 billion), Italy ($73 billion), France ($57 billion), Greece ($50 billion), Britain ($46 billion). When the Banque de France withdrew gold deposits from New York in October 1931, the US Federal Reserve was forced to raise rates from 1.5 per cent to 3.5 per cent at a terrible moment. It knocked the stuffing out of the US banking system. Needless to say, France was the bigger loser from this petulant act, though that took time to become evident.

The London Conference was a fiasco. President Roosevelt refused to attend. He took a sailing holiday to flag his contempt for Old World posturing. FDR feared a trap to draw America back onto the Gold Standard – the source of the misery – and to lock the White House into Europe's deflation orthodoxies. As delegates waited, he cabled a message mocking the "old fetishes of so-called international bankers". Keynes defended him as "magnificently right".

The London G20 comes earlier in the depression cycle. A good thing too. The fundamental circumstances are worse today than in the early 1930s. The debt burden is higher. The global economy is more tightly intertwined. The virus spreads more swiftly.

Do not be misled by apparent normality. Unemployment lags, and social devastation lags further – although it has already hit the Baltics and Ukraine. Do not compress the historical time sequence either. Life seemed normal in early 1931 when the press reported "green shoots" everywhere. Part Two of the Depression was the killer. Part Two is what we risk now if we botch it.

Yes, we have done better this time. We saved the credit system. Central banks have slashed rates to near zero in half the world economy. The heroic Bank of England has pioneered monetary stimulus a l'outrance, even if the ungrateful wretches of this island mock their own salvation. But we must move faster because world manufacturing is collapsing at three times the speed. The damage that occurred from late 1929 to early 1931 has been packed into six months. Japan's exports fell 49 per cent in January. Holland's CPB Institute says global trade shrank 41 per cent (annualised) from November to January. Industrial output has fallen heavily over the last year: by 31 per cent in Japan, 24 per cent in Spain, 19 per cent in Germany, 17 per cent in Brazil, 13 per cent in Russia and by 11 per cent in the UK and US. Almost all has occurred since September.

In any case, the European Central Bank (ECB) is still standing pat. It is partial to medieval leech-cures – and hamstrung by the lack of EU debt union. Now, if the G20 were to convey the world's wrath at Europe's monetary paralysis, we might get somewhere. But Gordon Brown has been sidetracked by fiscal flammery. We are past that stage. Only the printing presses can rescue us, and the ECB refuses to print. Tactically, Mr Brown erred gravely by promising "the biggest fiscal stimulus the world has ever seen". It is not his gift, and comes ill from a deadbeat state that cannot sell its own bonds.

There again, was it wise for the Czech premier and titular EU president to rubbish Barack Obama's fiscal blitz as the "road to hell"? That too comes ill from a leader who has just lost a no-confidence vote over his handling of the Czech economy. But the hapless Bohemian speaks for Europe, where Hooverism is written into EU Treaty law. Indeed, last week Brussels fired anathemae at Greece, Spain, France, Britain and Ireland, for breach of the 3 per cent deficit rule. We must retrench under Regulation 1466/97. Laugh not.

Germany's finance minister, Peer Steinbruck, is still digging in his heels against "crass Keynesianism". No matter that his economy will shrink 6-7 per cent this year. Germans must sweat it out: some more than others. Unemployment may reach five million in 2010. No doubt spending is a poor instrument, and we are all sick of bail-outs. But Mr Steinbruck might brush up on history. It was the deflation of 1930-1932 – not the hyperinflation of 1923 – that killed Weimar democracy. (Communists and Nazis won half the Reichstag seats in July 1932). The neo-Marxist Linke Party is already angling for 30 per cent in June's Thuringia poll.

You may agree with Mr Steinbruck. Fine. Capitol Hill does not. The most protectionist Congress since Bretton Woods is not going to acquiesce as precious US stimulus leaks abroad to the benefit of "free-riders". Patience will snap. "Buy American" is already US law.

The risk is that this G20 becomes the defining moment when a disgusted American political class – sorely provoked – turns its back on the open trading system. The US alone has the strategic depth to clear its own path, and might find eager partners in a "pro-growth bloc" – much as Britain led a reflation bloc behind Imperial Preference in the early 1930s. As the world's top exporters, Germany and China should take great care to restrain their body language this week.

Well done, Mr Brown, for trying to hold the world together. But if the summit degenerates into a shouting match between mercantilist creditors and prostrate debtors, it may serve only to frighten markets and tip us into the next – more violent – downward leg of this slump.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5067491/Only-a-united-front-at-the-London-G20-can-save-the-world-from-ruin.html