The agenda for the 2010 G-20 Seoul Summit, which begins Wednesday night in Seoul, South Korea, is shaping up as a showdown between exporting powers, such as Germany and China, and nations such as the US, France and Britain that are struggling to emerge from recession and high unemployment. Among the issues on the agenda are: controls for the global trade ‘imbalance;’ the global currency war; a coordinated framework for sustainable, balanced global growth; and strengthening the international financial regulatory system, among other items. Ahead of the meeting, tensions have flared in particular between German and US central bank officials. US Treasury Secretary, Tim Geithner, has been pressing member nations to sign up for a new framework that would set limits on countries’ trade balances. Germany, which relies heavily on exports, has lectured Washington about its economic policies, which Berlin sees as profligate and damaging to other nations that have managed their economies more effectively than Washington. China and Germany have formed a tandem alliance, as Reuters is reporting, in heavily criticizing of US Federal Reserve monetary policy. Read more from Reuters here.
China has moved adroitly to deflect criticism of its currency policies by pledging to move at a pace in its own economic interests, not that of the West’s; and by pointing to other sources of global imbalances – such as volatile, risky and highly leveraged Western financial markets, and poor fiscal management by US and European central banks.
To be sure, this ensuing conflict over quantitative easing, and global currency valuations will be the pivotal issue of the Seoul G-20 Summit; and is central to the growing trend of a shift in global economic influence — something I’ve written about before. World leaders broadly agree that for the global economy to be more stable, imbalances between creditor countries like China, Brazil and Germany; and that of debtor nations like the US and Britain have to be fixed: but the real question is, how..?? And, ‘at whose expense’..?? Nevertheless, the counter to the fix the “global imbalance” argument is that the global economic crisis, the ‘imbalance’ itself, was precipitated by Western industrial economies – who heretofore, wrote, controlled, and dictated the rules of global economic participation to their benefit and to the detriment of emerging economies – and it is patently immoral to, now, coerce emerging economies to stifle their growth and prudent economic stewardship in order to benefit and reward the wayward economic policies of the Western powers and its financial benefactors (eg, Wall Street). Others, such as IMF President Dominique Strauss-Kahn argue that the answer lies in a coordinated global response where emerging economies have a greater stake in decision-making. Further, many emerging economies contend, that the ‘beggar thy neighbor’ approach by the US and its Western allies is no substitute for making tough, prudent, fiscal and economic decisions at home until the underlying fundamentals lead to economic growth. To that last point, I say, Amen!
Russia will insist at the G-20 summit that the Federal Reserve consult other nations ahead of major monetary policy decisions given the Greenback’s role as the world’s currency standard, or else the US should relinquish that role.
Already, expectations are low for the meeting. The G-20 is struggling to agree on specific targets for Mr. Geithner’s trade regime. It’s also likely to leave unresolved other big questions, such as how to unwind failing international financial institutions, a task made urgent by the recent financial crisis. Mr. Geithner said he is “very confident” world leaders, including those from China, will agree on a new framework that could instead include warning indicators for when a country’s trade balance is out of line.
However, on Monday, China’s Vice Finance Minister Zhu Guangyao said the U.S. isn’t living up to its responsibility as an issuer of a global reserve currency. The Fed’s move doesn’t “take into account the effect of this excessive liquidity on emerging-market economies,” he said. China has in the past publicly suggested that the US dollar should be replaced as the world’s currency reserve of choice.
Meanwhile, the top economic aide to Russian President Dmitry Medvedev said Russia will insist at the G-20 summit that the Fed consult with other countries ahead of major monetary policy decisions given the US dollar’s role as the world’s currency standard, or else the US should consider relinquishing that role. Touche’!
Luxembourg Prime Minister Jean-Claude Juncker, who is Chairman of the Euro-zone finance ministers, also weighed in on the Fed move, saying: “I don’t think it’s a good decision. You’re fighting debt with more debt.” Read more here.
On the other side of the coin, bracing for vigorous protests by South Korea’s highly organized labor unions, there are widespread reports that South Korea’s Ministry have been aggressively barring foreign activists from entering the country. See the video clip below; and read more here, and here.
Sources: Reuters, Daily Telegraph of London, India Times, NPR, WSJ