Welcome to the Bruegel G20 Monitor
This is a new forum of discussion specifically dedicated to the G20. The G20 Monitor (G20M) will host comments by scholars affiliated with Bruegel but will also be open to external contributors. It will accompany the institutional calendar by timing its contributions around the main G20 events, such as summits and ministerial meetings.
Time to deliver
Ignazio Angeloni, 28 May 2010
In a defining year for its credibility as a cooperation forum (for reasons, see my previous Editorial), the G20 is now approaching a critical juncture. The two meetings scheduled for June (a finance ministers and central bank governors meeting in Busan, Korea, on 4-5 June, in preparation for a leaders’ summit on 23-24 June in Toronto, Canada) are not the last planned for this year, but will unquestionably set the tone going forward and signal what can realistically be achieved in later months. In June we will probably know better how the post-crisis reform program will look like: what can be achieved and what will remain in the book of intentions. We will also begin to understand if the decision taken by leaders in October 2008 to put the G20 at the helm of global economic cooperation, replacing the G7 and making all international organisations de-facto report to it, will result in more effective governance as intended and needed or merely add another layer of inconclusive international meetings.
In the meantime, the crisis has shifted course and the nature of global risks has changed. From the outset, theory and intuition suggested that a crisis that had started in the financial sector, and then expanded into the real economy, would eventually turn into a fiscal crisis. The data of Reinhart and Rogoff show that this intuition fits the historical record. What didn’t seem obvious until recently was that this time the secular regularities would unfold so quickly for some highly exposed sovereign debtors, and that this would result in a return of clear and present danger in the international financial system reminiscent of late 2008. Greece and some other EU country fit the main R&R requirement, that of high external sovereign indebtedness, rather well; at least if one interprets “external” in the sense of their debt being held largely by foreign investors and denominated in a currency that cannot be used by individual nations to inflate their problem away.
This turn of events is relevant for the G20, for several reasons. First, it is likely to affect the development and the implications of global payment imbalances, an issue high in the G20 priority list for which a new coordination framework (the “Framework for Strong, Sustainable and Balanced Growth”) is being set up. Secondly, the approach chosen to deal with the EU debt problem, that of close cooperation between the IMF and the regional authorities, creates a precedent and perhaps a model for the future. This is an element that could feature in a future reformed “global safety net”; another focus of the G20 agenda to which I return below. More generally, the recent crisis of Greece and its global repercussions have highlighted, in new and important ways, the interdependence of the international financial system and the pressing need of global responses to global problems, the very vacuum that the G20 was created to fill. Having said all this, understanding how the G20 should approach the problem in the upcoming meetings, fitting it into its already dense agenda without overburdening it, is far from evident.
First and foremost, ministers and leaders in their June meetings will need to make appreciable progress in the area of macroeconomic policy coordination, fulfilling the mandate assigned by the leaders in the Pittsburgh summit last year. As noted by Jean Pisani Ferry and André Sapir in a recent contribution to this webpage, progress has been disappointing recently. The mark of success here should be threefold. First, the “Framework” should result in macro-policies by each major participating country or area that are different from those one would expect based on pure national interests or stated intentions.
We should, in other words, move beyond the “multilateral consultations” conducted by the IMF in 2006. Second, the macroeconomic scenarios designed by the IMF should convincingly show that global imbalances remain safely under control (possibly, decline) in the medium term. Third, the coordination exercise should give indications on the exit strategy from the present state of extraordinary fiscal accommodation...[Read more]
Back to the G7?
Jean Pisani-Ferry, 29 June 2010
The Toronto declaration sounds strangely familiar, as was the case for the disputes leading up to the summit. On the macro side, the only issue for discussion seems to have been the rift between the US and Germany as regards the timing and pace of budgetary consolidation. And on the financial regulation side the agenda is mainly one for implementation by the advanced economies. The emerging countries – the very countries that make the G20 a different body – feature prominently in the section on the International Financial Institution and Development only. So the whole in the end reads as a traditional G7 communiqué as if what really matters for the world economy were decisions taken in Washington and Berlin – not Beijing and Delhi...[Read more]
In praise of German conservatism
Julian Callow, 25 June 2010
Europe has been used to Germany providing a strong monetary anchor since the collapse of Bretton Woods, but Europe should also value the strength of the German fiscal anchor. By running a balanced budget at the peak of the economic cycle in 2007 (sustained also into 2008), Germany was well equipped to lay its fiscal credibility on the line when doing so became essential for the future cohesion of monetary union. At a time of crisis for Europe, it is fortunate that the German budget deficit ratio to GDP this year is likely to be a relatively moderate 4% (or thereabouts)...[Read more]
Europe’s role in global imbalances
Zsolt Darvas, 22 June 2010
The whole world is a closed economy, while Europe is not. In a closed world the current account deficit of a country is, by definition, the surplus of another country. The EU used to have a close to balance external current account position, but recent moves suggest that this stance may change. The euro is depreciating against the dollar, yet from highly overvalued levels, and more and more European countries start to announce fiscal consolidation plans...[Read more]
A modest proposal for the G20
Vito Tanzi, 21 June 2010
Soon the G20 group will meet again to continue its discussion of changes in the rules governing the international economy and the global, financial system. A danger is that, as time passes and as the world moves further away from the deepest point of the recent financial crisis, inertia will set in, lobbies will reacquire their past influence on legislators and other policymakers, and national interests will again prevail over global interests...[Read more]
Three essays on financial regulation
Viral Acharya, Matthew Richardson, Ingo Walter and Thomas Cooley
20 June 2010
Based on a forthcoming book- Regulating Wall Street: The New Architecture of Global Finance (John Wiley & Sons, Sept 2010), we have three essays that examine financial regulation against the background of the progress report submitted by the Financial Stability Board to the G20. The first essay deals with regulating OTC derivatives, the second essay presents a comprehensive plan for shadow banking, while the third essay lays out the economic principles that should underline a framework for managing systemic risk.
Read more on regulating OTC derivatives, the comprehensive plan for shadow banking and on managing systemic risks.
A G20 surprise
Barry Eichengreen, 18 June 2010
When the G20 meets in Toronto on June 23rd and 24th, it will say some predictable things. It will affirm the importance of fiscal consolidation.
It will underscore its commitment to strengthening financial regulation. It will reiterate the importance of avoiding protectionism and narrowing global imbalances.Here is a plea that it also say some surprising things...[Read more]
The G20-a group in search of a mission?
Angel Ubide, 17 June 2010
In the last few years, the debate about the supremacy of the G20 over the G7 was simple: the G7 didn’t anymore represent the key players in the global economy, and thus had lost legitimacy. It was time to move to the G20 as the center of global policy coordination.
And the success was immediate. The G20 managed to agree quickly on a global fiscal stimulus and on a sharp increase in resources for the IMF, thus contributing decisively to greatly reduce the tail risk of the global economic downturn...[Read More]
The G20 needs to refocus its financial regulatory agenda
Nicolas Veron, 16 June 2010
The G20 leaders meet again in Toronto on June 26-27, and hopefully will make progress on reform of the International Monetary Fund and other issues of global economic governance. But on one distinctive part of their agenda, financial regulation, achievements so far are less impressive than the initial ambition.
At the first G20 summit in November 2008 in Washington, shortly after the Lehman Brothers collapse, there was much rhetoric, especially from Europeans, in support of “global solutions to global problems.”... [Read more]
The G20's next test
Jean Pisani-Ferry, 11 June 2010
The G-20 meetings this month, first in Busan, South Korea for finance ministers, and later this month in Toronto for heads of government, mark the moment when the major players in the world economy shift gear from budgetary stimulus to retrenchment. Not everyone is in agreement about this. Before the Busan meeting, United States Secretary Tim Geithner warned against “a generalized, undifferentiated move to pull forward consolidation plans,” and emphasized the need to “proceed in step with the strengthening of the private-sector recovery.” But the other finance ministers did not echo Geithner’s warnings. Instead, they emphasized the “importance of sustainable public finances”...[Read more]