Tag: g20

Much Worse Than You Think: International Economic Diplomacy

A fundamental principle that we all hold dear is: in industrialized countries, with relatively high income levels, the government can’t be completely out to lunch.  After all, we reason, there are democratic processes, watchdogs of various kinds, and we can safely delegate monitoring of government official actions to others (e.g., the media). 

This principle is, of course, now appropriately called into question both for government officials directly and increasingly for the media’s scrutiny of what the government (and business) is doing.  As a result, the level of public attention to various domestic policies – bailouts and the like – is surely at or close to all-time highs; the current reaction time and seriousness in public discussions of various initiatives for banks must set some sort of record.

Yet there remains at least one completely murky and unaccountable area of government action: international economic diplomacy. Continue reading “Much Worse Than You Think: International Economic Diplomacy”

The G20 Lets Us Down

I’m continually amazed by how easy it is for government officials to hoodwink most of the news media.  All it takes is for a couple of leading finance ministers to get on roughly the same page, and we’re reading/hearing about “substantial progress” or “major steps forward.”  If someone provides an articulate background briefing to a leading newspaper on the supposed debate within a group of countries, this becomes the dominant news story.

Saturday’s G20 meeting of finance ministers and central bank governors is a leading example.  It was a disaster – we face what officials readily concede is the biggest financial and economic crisis since the 1930s, yet this conclave agreed precisely nothing that will make any difference.  If the G20 heads of government summit on April 2nd is a similar failure, we will be staring at the real possibility of a global catastrophe.  Yet the spinning storytellers of the G7 have still managed to get much of the press peering in entirely the wrong direction.

For more on what would the right direction, take a look at my piece in Britain’s Sunday Telegraph.

The G7 Are Asleep At The Wheel. Why?

The global crisis approaches another major twist in its downward spiral.  A key barometer of financial and fiscal pressure – the credit default swap (CDS) spread – has widened sharply for Irish government debt over the past few days; the markets think that the risk of a sovereign default is rising sharply.  Immediate action is needed to forestall a dramatic deterioration of growth prospects across Europe and around the world. Continue reading “The G7 Are Asleep At The Wheel. Why?”

Davos World Economic Forum: A Viewer’s Guide

The big annual economic meeting at Davos opens next week (Jan 28-Feb 1 are the official dates), and the discussion there – in both formal and informal interactions – is worth scouring for indications of the current situation around the world and where we all may be heading.

Given the likely composition of the main players this year – world corporate leaders and the non-US policy elite (with the new US policymakers stuck at home, doing real work; update: this is now confirmed by Bloomberg for Summers and Bair) – I would suggest viewers at home and on the ground keep watch for answers to the following.

  1. Are we on the same planet? It is not unheard of for Davos participants to appear as if they are living in their own bubble.  Watch for opulent parties and excessive consumption, particularly if the people involved have nominated themselves for any kind of government handout.  If you meet someone from Merrill, ask if their attendance fees came out of 4th quarter earnings – or if there is still more bad news to come. Continue reading “Davos World Economic Forum: A Viewer’s Guide”

Global Fiscal Stimulus: Should It Be An Obama Administration Priority?

The US has the opportunity – and perhaps the responsibility – to immediately retake a leadership role in global economic policy thinking, with the pressing priority of preventing the world’s recession from becoming something more serious.  But what should be Mr Obama’s priorities in this regard, for example in the run-up to the G20 summit in early April – which, given the timetable for these things, will have an unofficial dry run of sorts at the Davos meetings next week?

The obvious message could be: a large US fiscal stimulus is coming, but the rest of the world needs to do more.  In this option, Mr Obama could devote considerable effort to encouraging others to expand their government spending and/or cut taxes.

While worldwide cooperation of this form may have been a constructive thought last year at Davos, when the idea was first broached publicly by the IMF, a joint global fiscal stimulus is a glorious idea whose time has for now passed. Continue reading “Global Fiscal Stimulus: Should It Be An Obama Administration Priority?”

The G20: Gordon Brown’s Opportunity

Prime Minister Gordon Brown has been trying to drum up support for some form of Bretton Woods Two, i.e., a big rethink regarding how the global economy is governed.  So far, little support has materialized for any kind of sweeping approach to these issues.

Still, the chairmanship of the G20 affords him a great opportunity to make progress in other ways.  (The G20 website still needs updating, as does the group’s Wikipedia entry; the key point is that this is now a forum for heads of government, rather than for ministers of finance/central bank governors.  The chair was due to rotate to the UK in any case; the fact that it falls to Mr Brown in person is an amazing stroke of luck for him.)

The G20 focus in November, as you may recall, was largely on re-regulation and it remains to be seen how much of that agenda will be implemented by the next meeting on April 2nd.  But that meeting was substantially under French auspices, despite taking place in Washington.  Mr Sarkozy’s staff were jubiliant by the meeting’s end: “we have put the bell on the American cat” was the most memorable quote.  The next meeting will take place in Britain, with a new US President at the table, and looks likely to be a much more serious affair. Continue reading “The G20: Gordon Brown’s Opportunity”

G20 Summit: Just Disappointing or Potentially Dangerous?

Initial reactions to the G20 summit are fairly positive, in the sense that the communique and associated press conferences conveyed (a) there was no open acrimony, (b) the body language was broadly supportive of countercyclical policies, and (c) there may now be a serious international regulatory agenda.

None of this is really new and it could all have been arranged by finance ministers (probably over the telephone), but I agree there is some useful symbolism in having heads of industrialized and emerging market governments convene for the first time (ever?) on these kind of issues.

I will admit to disappointment that no more explicit commitments were made to fiscal stimulus.  I thought the British and the French were heading in this direction, and that they could create some momentum in the right direction.  If Europeans (or anyone else) would like to compete for a “special relationship” with the US after January 20th, they might consider coming to the next summit with substantial fiscal package in hand (as will President Obama). 

If the latest rounds of global economic diplomacy were the Olympics, then China gets gold in the fiscal stimulus category, Germany gets silver, and the UK (so far) is the distant bronze – but the UK does get one more throw next week.  Not the ordering of world economic leadership that one would ordinarily expect, but perhaps that’s a good thing.

In the category of “largest cash contribution designed to save the world from serious disruption”, Japan easily finishes first – their $100bn pledge to the IMF this week was timely, targeted and hopefully not temporary.  Sadly, there were no other entrants in this category.  Perhaps the chemistry and cooking at the White House dinner on Friday will prompt further contributions in the near future?

But there is, unfortunately, another way to read the communique – as a government or international official, for whom this text really is a set of instructions to be implemented.  The whole first part of the document is generic and definitely not new, so – as an official – one’s eye skips through that quickly.  The real issue is the deliverables in the plan of action, with a pressing deadline at the end of March (this is pretty much like saying “do it tomorrow” to an official).  This is where we – an official reader is thinking – must concentrate our immediate attention and efforts.  And most of these specific actions are about tightening regulation on and around credit, or beginning processes that definitely point towards many dimensions for this kind of tightening – accounting standards, hedge funds, risk disclosures, financial sector assessments, credit rating agencies, risk management and stress testing models, international standard setters, sanctions for misconduct, reporting to supervisors in different countries, and more.

There is, of course, nothing wrong with making regulation more effective.  This is surely needed – in both the US and Europe, and probably elsewhere – to help lower the odds of another global financial crisis developing in the future.

But we are still not out of this crisis.  And tightening regulations quickly in the midst of a worldwide credit crunch is one good way to make sure that credit contracts further and faster.  Lending standards naturally tighten in a crisis; the issue to address going forward is how to prevent standards from loosening too much in the next boom – but this is at least several years down the road.  I’m in favor of starting early, but I do not like precipitate action just because you want to look busy and you could not agree on the more pressing issues, such as fiscal policy, support for the IMF, shoring up the eurozone, and so on.

It is true that one (among many) of the stated principles is: “Mitigating against pro-cyclicality in regulatory policy.”  But that is a general statement that is not mapped into operational requirements – except that the IMF and FSF should work together on this, which is a good way to make sure it doesn’t happen.  What officials have to deliver on, by the end of March, is substantive progress with regards to tougher and tighter regulation of credit.  There is a real danger that this action plan – within such a short time frame – can actually make the global downturn dramatically worse.

Root Causes of the Current Crisis

We’ve gotten a fair amount of criticism over on our latest Baseline Scenario post for not correctly identifying the causes of the financial crisis. I understand the criticism that we don’t identify the one single, crucial cause, because historical events like this are always overdetermined: there are always multiple plausible explanations, and with a sample size of one there’s no way to know which explanation is correct. (It reminds me a key issue in torts, where you distinguish between cause-in-fact and proximate cause … well, never mind. It’s a fascinating subject, but a bit off-topic here.)

Anyway, luckily for all of us, today’s G20 communique reveals the “Root Causes of the Current Crisis.” In case you missed it:

Continue reading “Root Causes of the Current Crisis”

The G20 Summit: Europe’s Greatest Moment, Or Not? (And a Quiz)

From their pre-meeting, it is reasonably clear what Europeans (except probably the British) want from the G20 summit on Saturday: a road map towards a great deal more regulation, together with agreement that the necessary powers and resources will be provided to implement these new rules at some international level (which could be the IMF or the Financial Stability Forum or the G20, or some combination).

And the Europeans are now apparently saying, on the sidelines, that victory – and a concrete action plan – is within their grasp.  This, of course, raises our expectations and makes us more prone to disappointment.  The White House, on the other hand, has been trying to manage our (and the Europeans’) expectations downwards. 

While we are waiting to learn the outcome of what is probably still a fairly intense conversation, here is a (relevant) pop quiz.

Below is the list of locations for press conferences to be held by participating countries after the conclusion of the summit, kindly provided by Planet Money.  The question is: which of these countries is not actually a member of the G20?  (Answer after the jump)

European Union & France — Willard Hotel
Japan — National Press Club
Italy — Embassy
Australia — National Building Museum
United Kingdon— Ambasssador’s residence
Canada — Embassy
Germany— Ritz carlton Georgetown
South Africa — Park Hyatt Hotel
South Korea –Paloma Hotel
Argentina — Park Hyatt Hotel
Mexico — Embassy of Mexico
Spain — Mandarin Oriental Hotel
Russia — The Washington Club

Continue reading “The G20 Summit: Europe’s Greatest Moment, Or Not? (And a Quiz)”

India in the Global Economy

One of our commenters pointed out that we have failed to say anything about India, despite its large and growing importance in the global economy. Simon’s colleague Arvind Subramanian (whom we have linked to before, including this morning) has a new opinion piece, originally posted at the Peterson Institute.

India and the G-20

The upcoming G-20 summit meeting in Washington provides an opportunity for India to help shape the new global economic architecture in line with its strategic and economic interests. India should propose short-term, crisis response actions to help limit the economic downturn; advance a clear, medium-term agenda; and push for a political commitment by all countries to keep markets open and prevent trade barriers from going higher.

Although the G-20 has been in existence for nearly a decade, this is the first G-20 summit meeting, and many participants will be looking to Prime Minister Manmohan Singh, a respected economist in India and throughout the world, for a particular contribution.

What does India bring to the G-20 table? As a long-time spokesperson for the G-77, India has a record of assuming a leadership role. But in the past, this role was often used to assert India’s right to retain sovereignty. In the words of Strobe Talbott, the former diplomat who now leads the Brookings Institution, India has been on many issues a “sovereignty hawk,” protecting its own interests at the expense of global cooperation on issues ranging from nuclear proliferation to trade. But with India’s growth, and in an era of globalization, its interests—and its perception of its interests—have changed. India now has a keen stake in sustaining an open global trading system. Accordingly, its leadership should now be harnessed for a different cause. Moreover, India has begun to realize that it needs to contribute to sustaining this system rather than assuming that the status quo can be taken for granted. But trading partners are wary of India, viewing India’s role in the trade negotiations as unhelpful. It would be a singular achievement if India can manage to reassure G-20 participants on this score. In short, leadership comes naturally to India. The question is going to be the cause for which India harnesses this leadership role.

As Aaditya Mattoo of the World Bank and I have argued [pdf], for India the medium-term agenda should include: First, reforming the financial architecture, including by strengthening the International Monetary Fund’s capacity to respond to crises and enhancing its legitimacy through radical governance reform to give greater say to the emerging powers. Second, securing the future openness of the trading system, which would require a commitment to go beyond completing the current Doha agenda in two ways: deepening rules in existing areas (especially services) and developing rules in new areas (to deal with undervalued exchange rates, cartelization of oil markets, investment restrictions and environmental protectionism). Third, reforming the makeup of the bodies involved in global decision-making, including the creation of a more representative membership than the G-7.

Arvind Subramanian is a Senior Fellow, Peterson Institute for International Economics and Center for Global Development, and Senior Research Professor, Johns Hopkins University

Now the U.S. Election is Over – On to the G20 Agenda

Sorry to interrupt your presidential election celebrations or commiserations, but it’s time to get back to work on the global crisis, which unfortunately is far from being over.  The G20 summit is fast approaching (November 14-15th) and – to say the least – the agenda needs to focus more on some immediate problems.  Reuters’ MacroScope has a piece from me today on arguably the most pressing issue: money.

G1 vs. G7 vs. G20?

We already know that at least some people in major European countries (Peer Steinbrueck, this means you) are mad at the U.S. for “causing” the global financial crisis. But while many of the rest of the G7 are at least complicit – European banks were buying large piles of the same mortgage-backed securities that set of the crisis in the U.S. – many of the world’s less-developed countries may be even madder at the U.S. Henry Paulson has called a meeting of the G-20, which includes some of the larger economies outside the G-7, for this weekend. The hope is that it will help dampen strife between rich and less rich countries, all of whom are being affected by the crisis.