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Posted on on November 19th, 2010
by Pincas Jawetz (

Three reasons G20 talks hit a dead end.

The G20 Summit in Seoul was widely seen as a failure.

“Obama’s Economic View Is Rejected on World Stage,” the New York Times declared on its front page. The Financial Times’ headline was “G-20 Shuns US on Trade and Currencies,” while the Wall Street Journal proclaimed “US Gets Rebuffed at Divided Summit.” In short, the media’s reporting on the Group of 20 summit in Seoul was brutal.

The meeting of government leaders was certainly a disappointment for those looking for coordinated policy actions to place the world economy on a more secure path to high growth, job creation and financial stability. It also highlighted the growing leadership vacuum at the center of the global system.

The focus now shifts to what comes next. Will the summit be a catalyst for more constructive discussions outside the spotlights and beyond the attention of the world media? Or will it seriously undermine a G-20 process that was successful in avoiding a global depression but has since failed to ensure a lasting economic recovery?

Absent some appropriate changes in mindset and behavior, the latter interpretation may well prevail for three reasons that may seem counter-intuitive to some:

First, the summit played down disagreements by producing a statement that has something for everyone. This attempt at short-term expediency can easily backfire. After all, it is hard for China, Germany, the US and others to make a solid case at home for compromises to meet global responsibilities when opponents can quote reassuring sections from the communique.

Second, what should have been a collective discussion on global rebalancing veered too much in a direction that placed the US on the defensive. And attempts at unilateralism by the US before the summit – through policy actions and widely circulated letters, which I suspect were meant to encourage others to fall in line behind American leadership – served only to display an unusual degree of isolation and foster even more questioning of the world’s biggest economy.

Third, with France set to assume the G-20 leadership, the summit opens the door wide for a government that is naturally inclined to greater intervention. In the past, this has tended to irritate the US in terms of both content and process.

French leadership of the G-20 also comes at a time when President Nicolas Sarkozy’s government is eager to secure visible quick wins on the global stage. It is under political pressure at home on account of budget austerity, and it also faces regional tensions due to the expanding debt crisis in the peripheral economies of the euro area.

This rather downcast analysis of what possibly comes next should ring alarm bells in Washington and in other capitals. It is a call for intensifying international economic diplomacy with a view, first and foremost, to reaching rapid convergence on a common analysis of what ails the global economy. Without that, any other step can’t be productive.

Global economic cooperation has been weakened by a disappointing G-20 summit. But coordination is still the only way to secure the collaborative outcome that is so critical for the wellbeing of so many around the world.

“Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions,” the G-20 statement said, adding that “uncoordinated policy actions will only lead to worse outcomes for all.”

Without common analysis and purpose, we will all find that a rather bland G-20 statement will, unfortunately, become very prescient.


In a new bid to dilute the focus on currencies and make a revaluation of the yuan more palatable to China, US Treasury Secretary Timothy F Geithner started out by proposing countries set numerical goals for their current account surpluses or deficits.

While South Korea, France and Canada were among those to back the initiative, it was challenged by major exporters Germany and Japan.

The US did not expect the G-20 and was ready to agree on fixed targets and instead was pushing for ranges or guidelines, with an eye toward a 2015 deadline for sustainable balances.

The Group of Seven, Brazil, Russia, India and China agreed to a plan to overhaul voting powers at the International Monetary Fund after a disagreement between the US and Europe over how to increase the role of emerging markets.

Europe will give up two seats on its executive board and a majority of G-20 countries will shift just above 6 percent of the so-called quotas, or voting rights, from over-represented to under-represented countries, officials said.

A current account is the broadest measure of trade because it includes investment and transfer income, and it would be hard to achieve any correction in one without a currency shifting.

Saudi Arabia, Germany, Russia and China all run surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the IMF.

The G-20 has long sought ways to restrain such imbalances and pivot the world economy away from its reliance on excess US demand and Chinese savings.

Limiting those talks to foreign exchange is too inflexible for nations with trade surpluses and refocusing them on current accounts would allow tools other than currencies to be used, a South Korean official said.

Even as it runs a trade surplus and builds currency reserves, China has curbed the yuan’s rise to about 2 percent since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation would cause social and economic disruption.

At the same time, the Federal Reserve has sent the dollar tumbling by leaning toward the purchase of more assets as officials struggle with unemployment near a 26 year high and inflation they say is below levels consistent with long term economic growth.

Trapped in the middle, emerging markets are embracing capital controls or intervening themselves to stay competitive with China and limit the inflow of speculative cash.

South Korea is discussing several measures including a bank tax or levy on financial transactions and Brazil this week raised taxes on foreign capital for the second time this month.

The G-20 finance ministers previously avoided taking a joint stance on currencies for fear of alienating China.

Any pledge against competitive devaluation would nevertheless echo language the G-20 leaders used as recently as an April 2009 conference in London. They also said in Toronto in June that they favored market based exchange rates.

Looking at the new Bernanke round of buying another $600 billion of assets in order to weaken the US$, Wolfgang Schauble, the German finance minister. said this policy is “clueless” because it is not consistent when the Americans accuse the Chinese of exchange rate manipulations and then steer the dollar exchange rate artificially lower with the help of their printing press.”

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