Opinion

From G7 to G20: passing three hot potatoes

Yesterday’s G7 video-conference ended in silence. It wasn’t even possible for the group to issue a joint statement after the US administration's push to enter into a blame game over the Covid-19 label. However, let’s not give up. There is one more chance today for global coordination: the G20 emergency video-conference hosted by Saudi Arabia. This is the opportunity for the G20 to stand out and overshadow the G7 and for the world to end up with some international policy coordination. The key issues continue to be dollar liquidity, excessive dollar appreciation and plummeting oil prices.

By: and Date: March 26, 2020 Topic: Global economy and trade

What a difficult world to live in, especially for those who believe in international cooperation. In the light of a pandemic, each nation affected takes its own measures without bothering to look at its neighbors. What a remembrance of what brought economies further down during the Great Depression.

In fact, yesterday, the G7 video-conference ended in silence (maybe in tears for those most affected, namely the European nations). It wasn’t even possible for the group to issue a joint statement after the US administration’s push to enter into a blame game over the Covid-19 label. However, let’s not give up. There is one more chance today for global coordination: the G20 emergency video-conference hosted by Saudi Arabia.

The good thing about today’s call, is that with China’s presence, it will be hard for the US (which holds the G7 presidency at the moment) to push others to discuss the labeling of the problem (the origin of the pandemic) rather than the solutions.  As a quick reminder for G20 members, here is a list of issues that would be worth discussing.

First, there is no doubt that a dollar liquidity crunch is one of the key ghosts haunting G20 cooperation.  While the Fed has already extended swap lines to nine more central banks, few of them are emerging economies (Mexico and Brazil only) and many more are waiting for news from the Fed. If the Fed feels uncomfortable with becoming the global provider of ultimate dollar liquidity, the IMF is clearly the second line of defense. Yet with over 80 countries having already knocked on the IMF’s door for emergency liquidity assistance, it seems obvious that its resources alone will not be enough to protect emerging and frontier economies from the hard currency liquidity shortages stemming from the coronavirus pandemic. The G20 would be well advised to discuss how to provide more resources to the IMF in a timely manner, even more so if the Fed is not ready to extend additional swap lines.

Second, and beyond USD liquidity, the strength of the dollar is, no doubt, an important topic for the G20. The G7 could have offered a more appropriate venue, as host to the most liquid currencies in the world, but the first mover advantage has been lost. This is why it is quite likely that G20 members will end up warning the G7 about the importance of avoiding excessive volatility in forex markets globally. One could argue that emerging economies may have been benefiting from weaker currency as a buffer to the slump in their economies due to the spread of the pandemic, but the reality is that currencies that are too weak are also risky, as it leaves room for investors to start doubting these countries’ ability to repay their dollar debt and, thus, push up the cost of funding. In other words, too strong a dollar is bad news for emerging economies as well, so the united front for coordinated forex intervention at the G7 level may be achieved at the G20.

Finally, commodity – and especially oil price – weakness will surely be discussed at a meeting in which major commodity producers sit at the table. It seems clear that the host –Saudi Arabia – will be kindly asked to contribute its fair share to avoid an additional collapse of oil prices from historically low levels. At this juncture, even major importers like India or China might tend to agree that too low commodity prices may generate more problems than benefits. In fact, the collapse of a major energy company, for example, let alone the default of an oil or gas exporter, could send shockwaves through the global economy, decimating the benefits of cheaper oil imports.

All in all, the hot potato that the G7 has passed to the G20 should be grasped with courage as the world has never been in more need of coordination for a problem that is, by definition, global: a pandemic. This is the opportunity for the G20 to stand out and overshadow the G7. This development will be one more important signal of the  increasingly – and inexorably –“West-less” world we are all living in.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More by this author
 

Blog Post

European governance

Pandemic prevention: avoiding another cycle of ‘panic and neglect’

Agreement is needed at international level on mechanisms to ensure better preparedness for the next pandemic.

By: Anne Bucher Topic: European governance, Global economy and trade Date: October 7, 2021
Read article More on this topic More by this author
 

Opinion

Letter: Declining investment may explain why rates are low

Perhaps an analysis of the causes of the declining investment rate would bring us closer to explaining why real interest rates are so low.

By: Marek Dabrowski Topic: Macroeconomic policy Date: October 1, 2021
Read article More on this topic More by this author
 

Opinion

What Evergrande signals about China's economic future

Under Xi Jinping's new economic agenda 'common prosperity', China is cracking down on indebted real estate developers like Evergrande.

By: Alicia García-Herrero Topic: Global economy and trade Date: September 30, 2021
Read article More on this topic More by this author
 

Blog Post

Monetary arithmetic and inflation risk

Between 2007 and 2020, the balance sheets of the European Central Bank, the Bank of Japan, and the Fed have all increased about sevenfold. But inflation stayed low throughout the 2010s. This was possible due to decreasing money velocity and the money multiplier. However, a continuation of asset purchasing programs by central banks involves the risk of higher inflation and fiscal dominance.

By: Marek Dabrowski Topic: Macroeconomic policy Date: September 28, 2021
Read article More on this topic More by this author
 

Opinion

The pandemic’s uncertain impact on productivity

The pandemic has certainly permanently affected our way of working. Whether this is for the better remains to be seen.

By: Maria Demertzis Topic: Macroeconomic policy Date: September 28, 2021
Read article Download PDF
 

External Publication

Building the Road to Greener Pastures

How the G20 can support the recovery with sustainable local infrastructure investment.

By: Mia Hoffmann, Ben McWilliams and Niclas Poitiers Topic: Global economy and trade, Testimonies Date: July 15, 2021
Read about event
 

Past Event

Past Event

Financing for Pandemic Preparedness and Response

How can we better prepare for future pandemics? In this event, co-hosted by the Center for Global Development and Bruegel think tanks, speakers will present "A Global Deal for Our Pandemic Age", a report of the G20 High Level Independent Panel on Financing the Global Commons for Pandemic Preparedness and Response.

Speakers: Masood Ahmed, Victor J. Dzau, Amanda Glassman and Lawrence H. Summers Topic: Banking and capital markets, Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 14, 2021
Read article More on this topic
 

Blog Post

Fair vaccine access is a goal Europe cannot afford to miss – July update

European countries must do more to tackle the vaccine uptake gap. Vaccination data should be published at the maximum granularity level so researchers and local decision-makers can monitor progress.

By: Lionel Guetta-Jeanrenaud and Mario Mariniello Topic: Macroeconomic policy Date: July 14, 2021
Read article More on this topic
 

External Publication

A Global Deal for Our Pandemic Age

Report of the G20 High Level Independent Panel on Financing the Global Commons for Pandemic Preparedness and Response.

By: Tharman Shanmugaratnam, Lawrence H. Summers, Ngozi Okonjo-Iweala, Ana Botin, Mohamed El-Erian, Jacob Frenkel, Rebeca Grynspan, Naoko Ishii, Michael Kremer, Kiran Mazumdar-Shaw, Luis Alberto Moreno, Lucrezia Reichlin, John-Arne Røttingen, Vera Songwe, Mark Suzman, Tidjane Thiam, Jean-Claude Trichet, Ngaire Woods, ZHU Min, Masood Ahmed, Guntram B. Wolff, Victor J. Dzau and Jeremy Farrar Topic: Global economy and trade Date: July 9, 2021
Read article More on this topic More by this author
 

Opinion

What to expect from the ECB’s monetary policy strategy review?

Emphasis will be placed on greening monetary policy and clarifying the ECB's price stability objective, but is this enough?

By: Maria Demertzis Topic: Macroeconomic policy Date: June 23, 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 economy and trade Date: June 14, 2021
Read article Download PDF
 

Policy Contribution

Inclusive growth

Blending the physical and virtual: a hybrid model for the future of work

The pandemic has shown that many workers can efficiently work remotely, with benefits for wellbeing and even productivity. The European Union should develop a framework to facilitate hybrid work.

By: Monika Grzegorczyk, Mario Mariniello, Laura Nurski and Tom Schraepen Topic: Digital economy and innovation, Inclusive growth Date: June 9, 2021
Load more posts