As widely anticipated, not much was achieved at the G20 Summit.
The announcement of $850 billion dollars for the international financial institutions and $250 billion in trade finance is a welcome sign that world leaders are paying attention to the needs of poor countries. But the lack of any real consensus on a true global fiscal stimulus demonstrates the ongoing rift between the US and Europe over the real solutions to stagnating growth. Trade finance is only useful if there is a serious demand for exports, and the estimated 10 percent decline in global trade makes plain that lagging demand is as much to blame as lack of finance for global trade slowing to a crawl.
Aside from some slightly higher numbers, the Summit produced essentially what commentators and economists have been expecting. So far as it went, that’s a good thing. Increasing the resources available to developing and emerging economies is critical to shoring up their external balances. Equally as important, increasing the fairness of IMF representation will help increase these countries’ stake in what remains the only global institution capable of managing the crisis.
It is unfortunate, however, that the US could not leverage such an agreement to secure more domestic stimulus plans from key European and Asian countries.
It is also a missed opportunity that, Prime Minister Brown’s assertion to the contrary, the G20 did not address the issues of toxic assets. The declaration states that, “We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalise financial institutions, and address decisively the problem of impaired assets.” No further details were provided. Referring to previous action does not count, and this same approach was taken with regard to fiscal stimulus when the declaration asserts that countries have already undertaken $5 trillion in “concerted fiscal expansion” to “save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year…raise output by 4 per cent, and accelerate the transition to a green economy.”
There is no explanation of where this figure comes from or what it counts. Given the rhetoric in the run-up to the conference, we can guess it includes the “automatic stabilizers” that a number of European countries would like to count as real stimulus. But supporting the unemployed is not the same as spending to create jobs, and with no clear agreement that such an approach is actually required beyond to “do what is necessary,” it’s likely the G20 will find themselves discussing the same issues again when they next meet.
Without better transatlantic cooperation, they won’t solve them then, either.
Alexei Monsarrat is director of the Global Business and Economics Program at the Atlantic Council.