The Group of 20 Finance Ministers and Central Bankers who met last Friday in Washington took only a small step towards monitoring “international economic imbalances” among the world’s leading trading nations. They agreed on a set of so called “indicative guidelines” with which to measure those imbalances and to strengthen coordination in order to avoid disorderly movements and persistent exchange rates misalignments.
Is this enough to manage world-wide economic imbalances?
Certainly not! It is perhaps a very small step in the right direction. Much more important is that it remains very unclear how these guidelines will ultimately lead to concrete action by independent sovereign nations. This is the problem of the G20!
It is true that the G20 represents a shift from yesterday’s world of Western-dominated economies towards the current multipolar environment. Nevertheless the G20 is lacking in democratic legitimacy and fails to give adequate representation to the global population based on the present forecasts. All the while, the economic landscape is changing rapidly, forcing us to adapt to this.
Developing economies will be engines of future global economic growth. Therefore, Europe needs to encourage further economic expansion in countries like Brazil, India and China. Otherwise it will miss a huge opportunity to address its own problems. Worse still, inaction will prevent Europe from helping to bring many millions out of the shackles of poverty and unemployment.
The G20 is now entering in a new phase and longer term objectives are becoming the priority. The framework for strong and balanced growth has the ambition to increase growth, while making it more sustainable – also in terms of social equality and to fight poverty – and avoiding the development of large imbalances.
It is equally important that the UN represents a fundamental pillar of any system of global governance. FEPS published a document entitled ‘For a global new deal’ recently. It outlined in a very engaged way the strategy for effective global economic governance: “the political drive should be given by a triangle composed by United Nations bodies, by the international agencies (including IMF, WTO and the World Bank) and by the G20”. With regard to international agencies, particularly the IMF and the World Bank, we should insist on a single seat for the EU and for the reallocation of voting powers in favour of so-called emerging countries.
The great contradiction of economic life at the beginning of the twenty-first century is that financial markets are inherently globalised, while regulation is still predominantly national and regional. This has allowed actors in financial markets to take extreme risks and the consequences of this anomaly have been truly catastrophic.
Global governance must be for global balanced growth.
The future international financial architecture should not only guarantee sound regulation, supervision and governance of financial markets, or prevent speculative phenomena. We must design a monetary and financial system which serves a just economy, able to ensure the largest access to the advantages of development, through the reduction of inequalities and an economic growth compatible with the protection of the environment.
There is an urgent need to “launch further steps with an in-depth assessment of the nature of the global imbalances and the root causes of impediments to adjustment,” as the G20 communiqué outlines. But there is still doubt, that European member states are willing to follow through with the necessary corrective and preventive measures that will form the 2011 action plan to ensure strong, sustainable and balanced growth, to be discussed by Leaders at the Cannes Summit in November of this year.
The recent G20 meetings have created high expectations but no substantial international reform path. This is the result, as already stipulated, of the lack of democratic legitimacy and therefore of the meetings and, therefore, their ability to be fit for purpose. Nothing has been discussed in the sense of the proposal of a group of international high level economists under the leadership of Joseph Stiglitz.
They argued that especially for this year’s period an expansion of the International Monetary Fund’s current system of Special Drawing Rights (SDRs). This proposal, while limited in scope, could play an important role in initiating discussion of deeper reforms while helping to restore the fragile world economy to health and achieve the aim expressed in the G20’s Pittsburgh declaration: strong, sustainable, and balanced growth.Ernst Stetter