What’s at stake A large part of the exercise during the recent Ministerial G20 and the discussion on macro policy coordination and global imbalances was to put enough pressure on China to move on the exchange rate without upsetting it enough to cripple other policy coordination outcomes. Hence a number of the touchy issues are avoided, circumvented or presented in way to distract from the actual problem. In the meantime, Fed Chairman Ben Bernanke presented a new paper on the role of the role of global imbalances in the run-up to the crisis. Noteworthy are also two recent policy reports, inspired by the Bernanke thesis, which put forward proposals for reducing the demand and increasing the supply of safe assets.… Read more
Bruegel blog
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The Global Savings Glut revisited
25th February 2011
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Let's bring our acts together
22nd February 2011
There is an unequivocal sign that a cooperation mechanism, a policymaking forum, a “G” in short, is losing effectiveness; that its agenda is becoming an end in itself rather than a premise for purposeful action. It is when its press communiquées lose focus and turn into long lists of unrelated wishes, none of which entailing a serious commitment by any of the participants. We have seen this in the past, for example in certain phases of the G7/G8 history, and malicious voices suggest this is already happening to the G20, the young and most ambitious global economic cooperation forum ever conceived. Are the critics right? Should we lose hope and start thinking about something else? The ongoing French presidency, that… Read more
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International Monetary System Reform: Will the G-20 Make Significant Progress?
22nd February 2011
President Sarkozy of France, current head of the G-20, has slipped comfortably into France’s traditional role of calling for fundamental reform of the international monetary system (IMS). On February 19, the G-20 finance ministers and central bank governors met in Paris and dutifully laid out a work program “aimed at strengthening the functioning of the IMS.” Will France and the G-20 be able to deliver more IMS reform than in previous efforts over the past four decades? The probable answer is no. At best, one can hope for a dialogue in sufficient depth that it will produce modest evolution, but fundamental IMS reform is likely to remain out of reach.The principal reasons for such lack of progress are, first, the… Read more
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Half empty, half full
22nd February 2011
G20: The glass is half-empty (Jean Pisani-Ferry)At the end of a long sleepless night, the G20 ministers on Saturday agreed on a list of indicators they intend to monitor in order to “maintain current account imbalances at sustainable level”. These are “(i) public debt and fiscal deficits; and private savings rate and private debt (ii) and the external imbalance composed of the trade balance and net investment income flows and transfers, taking due consideration of exchange rate, fiscal, monetary and other policies”. Syntactic puzzles apart, this sounds as a very straightforward list of indicators – in some respects as mere accounting. But there are three reasons to worry.First, long and painful negotiations were necessary to agree on this list, as… Read more
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Let's bring our acts together
22nd February 2011
There is an unequivocal sign that a cooperation mechanism, a policymaking forum, a “G” in short, is losing effectiveness; that its agenda is becoming an end in itself rather than a premise for purposeful action. It is when its press communiquées lose focus and turn into long lists of unrelated wishes, none of which entailing a serious commitment by any of the participants. We have seen this in the past, for example in certain phases of the G7/G8 history, and malicious voices suggest this is already happening to the G20, the young and most ambitious global economic cooperation forum ever conceived. Are the critics right? Should we lose hope and start thinking about something else? The ongoing French presidency, that… Read more
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Facing the Fiscal Music
18th February 2011
What’s at stake:The burgeoning debate over U.S. spending and debt drew some early attention on Thursday from the G20 talks in Paris. President Obama's proposed budget (published on Monday) would cut the deficit by $1.1 trillion in 10 years, with about two-thirds coming from spending cuts and one-third from added revenue. The House Republicans have called for much broader cuts of $2.5 trillion in 10 years. Both plans are primarily political statements, since neither is likely to be carried out without significant compromise. The FY 2012 Budget and CBO estimates Real Time Economics has a summary of the budget. 1) 5-year freeze on domestic discretionary spending, which White House says will save $400 billion. 2) Two-year moratorium that gives cash-strapped… Read more
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After the G20: time for realism in global financial regulation
10th November 2010
While the noisy arguments about macroeconomic imbalances and exchange rates dominated the publicity at the recent G20 summit, the participants in Seoul also marked an important milestone for financial regulation. They symbolically closed a cycle of intense global discussions that started two years earlier with the first G20 summit in Washington. The most prominent item was the endorsement of the Basel 3 accord on bank capital and liquidity, which was completed in September. That agreement significantly tightens earlier requirements and provides a convenient opportunity for world leaders to declare “mission accomplished” and move on to other topics. In many respects, the scope for global financial reform is becoming narrower. In the US, the adoption of the Dodd-Frank Act in July… Read more
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G20: Conflicts now need to be resolved, not papered over
10th November 2010
Perhaps the greatest danger for the upcoming G20 meeting is that politeness will prevail, with leaders diplomatically and prudently stepping back from the sharp accusations traded in the last couple of weeks. It would be a mistake, because the escalation in the rhetoric was simply a symptom of the seriousness of the issues which have to be dealt with at a global level, and cannot just be politely wished away. The clearest signal is the virulence of the accusations hurled at the Federal Reserve after its decision to launch a second round of quantitative easing. Major powers such as China and Germany have accused the US of engaging in a misguided attempt to depreciate the dollar, with little or no… Read more
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After the G20: time for realism in global financial regulation
10th November 2010
While the noisy arguments about macroeconomic imbalances and exchange rates dominated the publicity at the recent G20 summit, the participants in Seoul also marked an important milestone for financial regulation. They symbolically closed a cycle of intense global discussions that started two years earlier with the first G20 summit in Washington. The most prominent item was the endorsement of the Basel 3 accord on bank capital and liquidity, which was completed in September. That agreement significantly tightens earlier requirements and provides a convenient opportunity for world leaders to declare “mission accomplished” and move on to other topics. In many respects, the scope for global financial reform is becoming narrower. In the US, the adoption of the Dodd-Frank Act in July… Read more
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Currency Wars: What do effective exchange rates tell us?
9th November 2010
In November, South Korea joined the ranks of countries striving to limit the upwards pressure on their currency when two lawmakers submitted a parliamentary proposal to impose various taxes on foreign capital inflows and outflows. If any of these measures pushes through, South Korea would become the first (traditionally financially liberalised) OECD country to reinstate capital controls. This brings the list of countries intervening directly, indirectly or considering intervention to more than 23. This is an unwelcome and disturbing, but hardly surprising, development: as policy rates in the US are at near-zero levels and monetary policy is geared towards managing the yield curve in order to meet domestic objectives, emerging countries throughout the world are scrambling to protect themselves from… Read more