Chris Giles

In September 2009 I blogged about the similarities between the Pittsburgh G20 framework for strong, stable and balanced global growth and the 2007 International Monetary Fund multilateral consultations, noting that when global leaders were wrong to say their commitments to get rid of imbalances were new or made significant progress.

Today it is genuinely déjà vu all over again as the “Seoul Action Plan” papers over long-standing divisions on currencies and trade imbalances. Leaders have been doing their best to say the summit was not a failure and that the engine of global economic cooperation is still firing on all cylinders.

What is the evidence? According to the G20 it is this new passage about indicative guidelines in the communique. Read more

Former Fed chair Alan Greenspan has an article in today’s FT. It’s quite blunt about China and the US. “Both may be right about each other,” he says. “America is pursuing a policy of currency weakening,” while China’s reserve accumulation has caused exchange rate suppression for “competitive export advantage”. China and the US aren’t just hurting each other: the joint effect of their policies is to strengthen other currencies, placing those countries at a disadvantage.

Unlike most pundits hand-wringing over the current state of play, Mr Greenspan proposes a solution. It is quite radical. The G20, he says, can propose a new rule through the IMF that “limits the accumulation of reserve assets and sterilisation of capital flows”. “It would be easier to maintain and control than a stability and growth pact,” he says, referring to the “failed” eurozone agreement.

Well, yes, it would be easier. But the fact he has considered a stability and growth pact for sovereign states with separate currencies is staggering. The monetary proposal is also radical. Read more

G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”

This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. Read more

Chris Giles

What do you do if you are part of the Group of 20 and cannot agree on a coordinated global economic strategy? Agree to differ and set your best communique drafters to work.

The first thing to do is to find areas on which everyone can agree. Growth is the answer. When have you heard a leader or a finance minister openly advocating policies for stagnation? But alongside justice and education, growth is one of those words everyone advocates, but is meaningless. Growth is not a policy, but an aspiration. Read more

Chris Giles

Policy makers perform U-turns only at times of no alternative. Though there was a lot of talk about growth here in Busan, South Korea, the big news was that the global community now thinks fiscal stimulus is yesterday’s idea.

All in all, it is pretty sobering stuff. Fiscal stimulus has been ditched, not because the G20 thinks the private sector is surging ahead in Europe, but because there is no other option.

As recently as April, the G20 communique concluded:

“In economies where growth is still highly dependent on policy support and consistent with sustainable public finances, it should be maintained until the recovery is firmly driven by the private sector and becomes more entrenched.”

But today, all talk of continued policy support until recovery is entrenched has disappeared and the tone is very different:

“The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

Although Britain, in particular, claimed credit for the change of tone and some deficit hawks such as Jean Claude Trichet, president of the European Central Bank, seemed genuinely pleased, many other ministers and officials worried that  Read more

By Jonathan Wheatley

More on the debate about whether Brazil is overheating: Henrique Meirelles, central bank governor, weighed in today on the “No, it’s not” side with an assurance that inflation was under control, delivered on the sidelines of a meeting of G20 finance ministers and central bankers in Busan, South Korea.

He would say that, of course. The central bank has fielded a lot of criticism from market economists in recent months accusing it of being behind the curve in the fight against inflation. The bank raised its policy interest rate on April 28, its first rise since the last easing cycle, which lasted from January to July last year.

Critics say even the bigger-than-usual three quarter point increase was too little and too late to deal with Brazil’s ever faster pace of growth. Read more

Chris Giles

There is no doubt that the international wrangle over new banking regulations is hotting up. Standards for capital, liquidity and leverage are due to be settled by November and this is the big bone of contention here in Busan where G20 finance ministers are meeting. There does not seem to be a resolution in sight yet.

Everyone agrees that banking regulations need to be beefed up, but that is where consensus ends and the dissent starts. That this is difficult and threatens to blow up is clear from the delay to the higher capital requirements for banks’ trading books, which was due to be introduced in January and has now been postponed. There are disagreements over: Read more

By James Lamont

India has kept its hand well hidden at the table of the G20’s deliberations over how to prevent another global financial crisis. So the acknowledgement by Pranab Mukherjee, the country’s finance minister, that a bank tax is no alternative to better regulation is illuminating.

Senior Indian policymakers have been non-committal about International Monetary Fund-backed proposals for a global banking tax. They were similarly muted when Gordon Brown, the former UK prime minister, claimed to have gained wide support among the G20 countries for a global banking tax to fund future bail outs. The UK Treasury was seeking out India as a key ally.

Part of the reason for India’s reticence is that it experienced the financial crisis very differently from the west, and even some of its Asian peers. India’s banks suffered no threat of collapse, nor earned a reputation for excessive risk or returns. Policymakers are confident of India’s own prudent regulation. They are less sure of regulation elsewhere. Read more

Chris Giles

Here in Busan, South Korea, a port city which seems to double as the Blackpool of Korea, it is already clear that finance ministers and central bank governors will agree that growth is good for the world economy. Yes, really.

Is this surprising? No. Growth, like education and justice is generally a good thing. Everyone wants it. But no one is sure how best to achieve it when it comes to fiscal policy.

They are still unsure whether the global economy is best served by fiscal stimulus or prudence.

Everyone also agrees that the world economy is fragile and fiscal consolidation should be growth enhancing rather than detracting. But, in briefings before tomorrow’s Group of 20 meeting, few were willing to define exactly what they meant. Read more

Alan Beattie

By Alan Beattie and Tom Braithwaite in Washington

The proposal for a levy on banks’ balance sheets and profits was high on the agenda of the G20 grouping of nations after recommendations in a feasibility report by the International Monetary Fund, released earlier this week. Read more

Alan Beattie

Here in DC waiting for the G20 central bank governors and finance ministers meeting to end. There have been no actual cries of pain and bodies thrown out of the room as yet, but I think it’s safe to say that agreement over the vexed issue of taxes on banks’ balance sheets and/or profits is not going to be resolved this weekend. The Canadians at least have some moral authority on their side when they point out that their banks didn’t fail during the crisis, so why should they adopt the preferred solution of those whose banks did?

One thing strikes me, though. As we all know, the baton of global governance has passed from the G7 to the G20, sign of the rising power of Asia and Latin America, etc, etc. But this subject – the one that is most vexing and dividing them at the moment, except perhaps exchange rates – is a pure G7 issue. Few other countries’ banking sectors are big and developed enough to try to steal business from London or New York or Frankfurt or Paris or Tokyo as a result of new bank taxes, and those that might conceivably be – Singapore, Switzerland – aren’t in the G20 either.  The G20: not a governance panacea. Who’d a thought it?

Chris Giles

Should we feel sorry for the International Monetary Fund? Quite often the answer is yes. The Fund gets passed an international hot potato to write a report about because countries cannot agree; it then writes an equivocal report; and then gets it in the neck when – surprise, surprise – countries do not like the findings.

On the international tax on banks two of these three features apply. The Fund was asked by the Group of 20 to investigate how to make banks contribute to the taxpayer support they enjoyed when there was no consensus at all last September; and countries such as Canada and Japan hate the Fund’s report. But in this instance, the Fund did not write an equivocal report. The leadership of the IMF are fully signed up to the principle of an international tax on banks and have been staunch advocates of taxing banks for some time.

As the report says:

“Expecting taxpayers to support the sector during bad times while allowing owners, managers, and/or creditors of financial institutions to enjoy the full gains of good times misallocates resources and undermines long-term growth. The unfairness is not only objectionable, but may also jeopardize the political ability to provide needed government support to the financial sector in the future.”

The big question is whether a new tax on banks (or two new taxes as the IMF is proposing) will ever happen. Read more

Alan Beattie

This letter the other day from Barack Obama, Gordon Brown, Nicolas Sarkozy, Lee Myung-Bak and Stephen Harper looks at first sight like the usual bland exhortations for everyone to do better. (Why didn’t Angela Merkel sign, btw? Too busy with Greece?) But the semiotics are a bit more complex. The bit about “We all understand that ongoing trade, fiscal and structural imbalances cannot lead to strong and sustainable growth” looks pretty much like a pointed jab at China.

So does this mean the currency wars are going to break out in the G20? Since the grouping is supposed to work on consensus, it has generally shied away from arguments about exchange rates, which have the potential to blow up any meeting or institution in which they take place. Throwing them into the mix will make G20 meetings a lot livelier, at least. I’m not convinced it’s wise, though, for a joint letter apparently aimed at China to be signed exclusively by a gang of rich countries. If the US wants to use the G20 to put pressure on the Chinese, it will have to get on board emerging market countries also suffering from renminbi undervaluation, Brazil being the obvious example. The last thing the US wants is to replicate the unhelpfully rigid rich-country-vs.-poor-country divisions that have blocked progress in the WTO.

Chris Giles

In a recent speech, Mervyn King, governor of the Bank of England railed against the inconsistencies of national recovery strategies, saying that, “a present there is no political mechanism for achieving that consistency”.

While he praised the G20 process so far, he added:

“Looking further ahead, the legitimacy and leadership of the G20 would be enhanced if it were seen as representing views of other countries too. That could be achieved if the G20 were to metamorphose into a Governing Council for the IMF, and at the same time acquire a procedure for voting on decisions.”

In an interview with the FT, Read more

Chris Giles

Something is afoot in global currency negotiations. President Sarkozy yesterday attacked global “currency disorder” and pledged to make currencies a central theme of France’s presidency of the Group of 20 in 2011.

I know many people will roll their eyes and say, so what’s new. This reaction is totally justified by the standard G7 ritual, loved by all the meeting’s followers.

Before a meeting, the French finance minister or president will make a stink about currencies and overvaluation of the euro, saying that this will be a key topic on the agenda on the next group of seven meeting. Then the meeting comes along. Currencies are not on the agenda. They are not talked about. The G7 then issues the same empty statement about currencies. Read more

Chris Giles

Gordon Brown has just tried to upstage the G20 finance ministers meeting by reheating the idea of a global levy on financial transactions – a tobin tax of sorts. His words were rather more cautious than the spin and this idea is still going absolutely nowhere, writes Chris Giles of the Financial Times.  Read more

Chris Giles

Pity the poor finance ministers and central bank governors of the Group of 20 leading countries. They have to hike up to St Andrews in Scotland on Friday, with ghastly weather predicted, to hold a pretty pointless meeting writes Chris Giles of the Financial Times Read more

Chris Giles

The G7 communique urges China to let its currency appreciate. The logic of the G7′s position is fine, says Chris Giles of the Financial Times, but it has said it before, China does not agree, and so it is an entirely toothless statement.  Read more

Chris Giles

The G7 is dying as finance ministers and central bank governors prepare to meet in Istanbul tomorrow. Officials are giving obituaries, but the G7 will have a last hurrah writes Chris Giles of the Financial Times. Canada has had a tantrum and insisted the baton does not pass to the G20 until it has had its turn in the chair next year.  Read more

Chris Giles

The thing that really stood out from Barack Obama’s press conference was his vow not to return to the bad old ways of “boom and bust”.

Having heard Gordon Brown overuse that phrase for more than a decade, it is too much to hear the same from Obama. The words blew up in Brown’s face once the crisis started. Read more