Blog Post

The Ruses of the crisis

Jean Pisani-Ferry believes that while the G20 countries did not agree to change their individual policies, they did rally round what is starting to look like a global policy. He looks at the creation of Special Drawing Rights (SDRs); the significant increase in the resources of the international financial institutions; decisions and shortcomings regarding governance […]

By: Date: April 4, 2009 Topic: Global economy and trade

Jean Pisani-Ferry believes that while the G20 countries did not agree to change their individual policies, they did rally round what is starting to look like a global policy. He looks at the creation of Special Drawing Rights (SDRs); the significant increase in the resources of the international financial institutions; decisions and shortcomings regarding governance of the IMF and Wolrd Bank and finally regulation. For the author, the contours of economic and financial governance at a global level have been defined during the summit.

At the world economic conference of 1933 in London, it was with a killer telegram about the [monetary] ‘fetishes of so-called international bankers’ that Roosevelt put paid to already very wobbly international cooperation. Given a Barack Obama determined to break with the unilateralism of George Bush, the London summit did not have any such risk to contend with. But a limp compromise would have been sufficient to ignite economic nationalism.
The summit of 2 April clearly sought to project the opposite image. So what actually came out of it? On coordination of national stimulus packages, the divergent views were well known: the Americans wanted their partners to do more and Europe considers it is already doing enough. They had no chance of being reconciled, and were not. Beyond the rhetoric the summit took no action. But it was agreed that the IMF would be tasked with evaluating national initiatives and making proposals. So the ball is rolling. If growth does not recover in the coming months, the IMF will certainly be drawing attention to the failings and tabling a plan. It remains to be seen what will happen as a result but at least there now is a monitoring system in place.
In spite of IMF insistence, there was no reference either to a parallel assessment of national programs to rescue and restructure the banks. On this account there is ground for disappointment. A cleaning up of banks balance sheets is arguably the first priority, yet governments procrastinate as if they had not learned the lessons from Japan.
However, while the G20 countries did not agree to change their individual policies, they did rally round what is starting to look like a global policy. The significant increase in the resources of the international financial institutions is key because developing countries are facing an abrupt drying up of capital inflows – from 800 billion USD in 2007 to probably less than 200 USD this year – which for many of them implies balance of payments crises and recession. Public flows therefore had to step in to replace private money. The commitments made (250 billion USD for the IMF immediately, 250 billion more in the short term and 100 billion for development banks) are credible. Alongside this, the IMF is setting up a flexible credit line in order to lend for the first time without any economic policy strings attached. This is a genuine concerted global boost for the South worth potentially around four percent of the GDP of the countries eligible.
A more surprising decision is the creation of Special Drawing Rights (SDRs), the IMF-issued international quasi-currency, to a value of 250 billion USD. By distributing SDRs for free, the G20 is seeking to avoid countries acquiring such reserves by accumulating current account surpluses and thereby helping to deepen the recession. In doing so, they are dusting off a largely forgotten instrument with a circulation today of a mere 20 billion USD and which only the Chinese had shown any interest in recently. No one knows when the SDRs will actually be allocated and since the decision has been to go for a ‘general allocation’ in proportion of quotas, many countries will be handed over liquidity they do not need. But the symbolism is strong. Against this background decisions about the governance of the IMF and the World Bank fall short of what would be required to ward off widespread suspicion among the developing countries, especially in Asia. The commitment to a further quota reform is a weak one that mentions dates but does not set targets nor even a direction. In a similar vein the declaration indicates that the heads of the institutions


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

External Publication

L’Union européenne et les États-Unis, un an après

Après une année troublée par Kaboul et AUKUS, qu'avons-nous retenu de l'an I de la présidence Biden ? Maria Demertzis revient sur les évènements marquants de l'année 2021 pour la relation entre les États-Unis et l'Union européenne.

By: Maria Demertzis Topic: Global economy and trade Date: December 8, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

What to watch in 2022: China's economic outlook

Our end of 2021 recap of China’s economic activities.

By: The Sound of Economics Topic: Global economy and trade Date: December 8, 2021
Read article More by this author
 

Blog Post

European governance

The Global Gateway: a real step towards a stronger Europe in the world?

Disappointment at the lack of fresh cash from European Union global connectivity strategy is short-sighted: Europe supports global development more than any other country in the world. Using existing funds more strategically is the right priority for now.

By: Simone Tagliapietra Topic: European governance, Global economy and trade Date: December 7, 2021
Read about event
 

Past Event

Past Event

China’s medium term outlook: Will innovation save China from becoming old before it becomes rich?

What can China do to stop the deceleration of its economy. Is innovation the solution?

Speakers: Jean-Francois Di Meglio, Alicia García-Herrero and Guntram B. Wolff Topic: Digital economy and innovation, Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 1, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

A new consensus for economic resilience

Is there a need for systemic reform of global economic governance?

By: The Sound of Economics Topic: Global economy and trade Date: December 1, 2021
Read article Download PDF More on this topic More by this author
 

External Publication

Chinese economic statecraft: what to expect in the next five years?

Chapter from 'Storms Ahead: the Future Geoeconomic world order' on the expectations from the next five years of Chinese economic policy, published on 27 October 2021.

By: Alicia García-Herrero Topic: Global economy and trade Date: November 26, 2021
Read about event More on this topic
 

Past Event

Past Event

Advancing global value and supply chains to mitigate the challenges arising from the pandemic

Session at the 1st ASIA-EUROPE ECONOMIC AND BUSINESS FORUM: Transitioning to a New Normal: Leveraging Global Value Chains, Multilateralism and the 4IR

Speakers: Carmen Cano, Alicia García-Herrero, Jong Woo Kang, André Sapir, Luca Silipo and Tetsuya Watanabe Topic: Global economy and trade Location: Phnom Penh, Cambodia Date: November 24, 2021
Read article More by this author
 

Blog Post

Fiscal arithmetic and risk of sovereign insolvency

The record-high debt levels in advanced economies increase the risk of sovereign insolvency. Governments should start fiscal consolidation soon in an environment of low nominal and real interest rates and post-COVID growth.

By: Marek Dabrowski Topic: Global economy and trade, Macroeconomic policy Date: November 18, 2021
Read about event
 

Past Event

Past Event

How can we create more sustainable value chains?

There is an urgent need for GVCs to become more resilient and inclusive, and meet the net-zero challenge.

Speakers: Erik Berglöf and Alicia García-Herrero Topic: Global economy and trade, Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 10, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Why is China cracking down on big tech?

A look at China’s recent regulatory efforts in the digital space.

By: The Sound of Economics Topic: Global economy and trade Date: November 10, 2021
Read article More on this topic More by this author
 

Blog Post

What to make of the EU-US deal on steel and aluminium?

While deeply disappointing that the surprise deal maintains aluminium and steel tariffs against the EU beyond a modest quota, it alleviates a major irritant in transatlantic relations and contains interesting and innovative features relating to climate policy and to dispute settlement under WTO rules.

By: Uri Dadush Topic: Global economy and trade Date: November 4, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

The state of trade: the EU's trade policy

A conversation with Member of the European Parliament Bernd Lange on the European Union’s trade policy.

By: The Sound of Economics Topic: Global economy and trade Date: November 3, 2021
Load more posts