Blog Post

Some light in the fog

The good news is that the G20 summit seems to have been more forceful in addressing the impending risks to the international economy than last minute expectations implied. A dubitative form is necessary, however, because the signs from Los Cabos are uncertain and partly contradictory and also because a lot will depend on follow-ups. The […]

By: Date: June 20, 2012 Topic: Global Economics & Governance

The good news is that the G20 summit seems to have been more forceful in addressing the impending risks to the international economy than last minute expectations implied. A dubitative form is necessary, however, because the signs from Los Cabos are uncertain and partly contradictory and also because a lot will depend on follow-ups.

The central message in the final statement, “Euro Area members of the G20 will take all necessary policy measures to safeguard the integrity and stability of the area” would in itself be quite significant if it could be taken literally. Good part of the summit and a host of meetings and contacts on the side were centred on Europe’s contingencies and how to deal with them. One thing is certain: the euro area leaders attending the meeting (5 in number, plus Spain as guest) were under the spotlight with greater intensity than they anticipated, as revealed indirectly by Manuel Barroso, the Commission President, in a press conference: “we are not here to receive lessons [on] how to handle the economy”.

The Los Cabos meetings were useful also in clarifying further the elements of the European diplomatic puzzle. They can be summarised as follows:

1.       Negotiations are slower than one would hope because each side uses delay tactics to obtain maximum concessions from the others;

2.       The two main players, Germany and France, differ in that the second can accept further EU federalism only if it (first) sees effective crisis resolution instruments in place, while the first is prepared to accept the latter only after having secured the former;

3.       While this conundrum would lend itself to a very natural solution (do both at the same time, and quickly!) it also risks generating dangerous “chicken games”, whose unintended casualty may end up being Europe’s monetary and financial stability.

Recent developments clearly suggest that, at the point we are, the simple announcement of roadmaps however credible would not stabilise markets on a durable basis. Hence the need for a multiple package including both elements mentioned under point 2. Reportedly, discussions started in Mexico, and are likely to continue in Rome (where EU leaders will meet on Friday) and Brussels (at the 28-29 June European Council), on the possibility of using interventions by the EU rescue funds to backstop sovereign yield spreads for countries still on the market but under stress, subject to conditionality. If successful, this hypothetical strategy would reduce the risk of self-fulfilling runs on sovereign debt markets, which in present conditions would inevitably be accompanied by runs on the banks. If concrete, these discussions can become a useful element in a crisis management strategy.

On another issue, a useful deliverable of the summit was the completion of the IMF resources increase, announced in April but yet to be clarified in several respects. As detailed by the IMF, after Los Cabos the commitments sum up to more than 450 US dollars, with several countries adding in their commitment at the summit, notably the 5 BRICS (for a total of 75 mln US$).

Otherwise, the remaining 8.000-some words of the Los Cabos summit final communiqué add little value:

·         The leaders have launched a “Los Cabos Growth and Jobs Action Plan”, whose content, however, is entirely made up of measures already decided or adopted before the meeting.

·         On financial regulation, the decisive stance of the London 2009 declaration is completely gone; in spite of the long sequence of “welcoming” and “encouraging” statements, referred to actions undertaken or planned by regulators and standard setters, the reality is that the process has been entirely delegated by the G20 and no more guidance or stimulus from it is coming. This is worrisome, because, as we see on both sides of the Atlantic, resistance to change is very strong and without political involvement little is likely to be achieved.


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
 

Podcast

Podcast

Avoiding a requiem for the WTO

The WTO has been 'missing in action': how can we restore the organisation's role as a global forum for cooperation on trade?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 16, 2021
Read article More on this topic
 

Blog Post

The socio-economic consequences of COVID-19 in the Middle East and North Africa

Confronted with COVID-19, high-income Gulf countries have done better than most of their middle- and low-income neighbours; Jordan and Morocco are also positive exceptions.

By: Marek Dabrowski and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: June 14, 2021
Read article
 

Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Read article More by this author
 

Podcast

Podcast

[LIVE] A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: The Sound of Economics Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Challenges and growth of China's private sector

Is the dynamic role of the private sector in China under threat by its economic model and the United States?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 9, 2021
Read article
 

Opinion

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: Ana Palacio and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: June 4, 2021
Read article More on this topic More by this author
 

Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: June 3, 2021
Read article More by this author
 

Opinion

Inflation, inequality and immigration: Spelling the digital recovery with three “I”s

The digital transition offers us a new opportunity to reach out across the global economy - hopefully we will find the strength to use it.

By: Rebecca Christie Topic: Global Economics & Governance, Innovation & Competition Policy Date: June 3, 2021
Read article
 

Blog Post

For the climate, Asia-Pacific must phase out fossil-fuel subsidies

An exit from coal in the Asia-Pacific region is a global decarbonisation priority.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: May 31, 2021
Read article More on this topic More by this author
 

Blog Post

International tax debate moves from digital focus to global minimum

International corporate tax reform is coming closer if countries can set aside their differences and work for progress rather than the perfect deal.

By: Rebecca Christie Topic: Global Economics & Governance Date: May 27, 2021
Read article More by this author
 

Parliamentary Testimony

House of Lords

The UK’s security and trade relationship with China

Testimony before the International Relations and Defence Committee at the House of Lords, British Parliament on the UK’s security and trade relationship with China.

By: Alicia García-Herrero Topic: Global Economics & Governance, House of Lords, Testimonies Date: May 27, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Towards a global corporate tax?

How will a global corporate tax affect the modern economy?

By: The Sound of Economics Topic: Global Economics & Governance Date: May 26, 2021
Load more posts