Is there a possibility all the disagreements and blaming going on recently between world leaders were little more than jostling? So Germany blames Anglo-Saxons, China blames the West, the US blames China, Brown and Obama want to see the world’s main economies spend, other leaders say no.
It seemed inevitable that the G20 meeting would agree to nothing. Gordon Brown’s attempts to present himself as the architect of a global accord are doomed to end in failure.
But there were hints this morning that that could be about to change. Maybe we have seen little more than arm wrestling, with each party trying to score points before the great coming together.
According to this morning’s Guardian, EU leaders will tell the G20 summit they are ready to provide more stimulus.
The Guardian report said that senior EU officials, speaking under the condition of anonymity said: “The world does not need this fight as what we want is to increase global demand to offset the financial crisis and everyone must make an effort. We’re not that far apart from the US, though we approach the issue from slightly different starting points and substantially different budget structures. Excessive zeal spent on comparing things which are not comparable is not helpful.”
Meanwhile, in the Telegraph, arch economic pessimist Ambrose Evans-Pritchard quoted Nout Wellink, Governor of the Dutch central bank, as saying there is now “an increasing risk of deflation”. The views of the Dutch central banker are at stark odds with the views of ECB president Jean-Claude Trichet, who has long denied there is any danger of deflation.
In the same article, Lucas Papademos, Vice-President at the ECB was quoted as saying: “It may be warranted that the central bank purchases private sector bonds to enhance liquidity. No decision has been taken, but it is a possibility that could improve the markets.” In other words, the ECB is considering its own form of quantitative easing after all.
Meanwhile, in China, the top central banker Zhou Xiaochuan slated the West for not taking ‘decisive’ action to boost economies in the way that China had.
There is growing evidence that China’s fiscal stimulus packages are working, and more and more economists are predicting a strong recovery in China soon. China is of course in a very different situation from the US. In China, the problem was too much reliance on overseas demand, and too low domestic spending. China does not have the same reason to fear a fiscal stimulus that we do in the West. It is not in debt, savings in China are high, and capacity is vastly in excess of demand. China can safely boost demand without risking the same kind of backlash many fear could occur in the West.
But, China’s recent jostling is highly significant. Expect China to come out of the G20 meeting with a much stronger role in the global economy. It is clear that, moving forward, China will be one of the key determiners of global economic policy. She will have a say over the way the IMF is run, she is pressing for a new international currency.
But for China, this crisis has been an important learning process. She has learnt that if she is to continue to enjoy growing economic prosperity, then she has to take a greater role in the global economy, and can no longer rely on Western borrowing to buy her products.
The global economy will be more stable, as a result.
Thanks to the falling pound, there is an argument to be made for saying inflation remains a threat in the UK – but for the global economy, this argument just does not apply. Globally, the crisis today is one of demand lagging way below potential supply. Ultimately, only a form of global quantitative easing can fix this, and maybe at the G20 meeting, the penny will finally drop.
© Investment & Business News 2013