G20 summit and the world economy
Thursday, 1 July 2010
The leaders of the Group of 20 (G20) have failed to agree on a common economic and fiscal strategy to return the world economy to health at their summit meeting held in Toronto on June 26-27. It was an anti-climax of the robust optimism of cooperation that radiated at the Pittsburgh summit of the G20 last year. In the statement of the Pittsburgh summit, G20 was designated as "the premier forum for our international economic cooperation". The G20 leaders agreed to "launch a framework that lays out the policies and the way we act together to generate strong, sustainable and balanced global growth. We need a durable recovery that creates the good jobs our people need."
The Pittsburgh summit took place when the world economy was on the cusp of the global recession. The situation has since changed. The recession has subsided to a great extent thanks to the Keynesian-type massive bailout and stimulation programmes aimed at the resuscitation of the ailing American and European economies. There are signs of recovery in various economies that were severely affected by the recession. On the other hand, the Greek debt crisis has panicked many, particularly in Europe. They have become wary of Keynesianism, which advocates deficit financing to stimulate the economy and create jobs leading to recovery from a recession. They are now zealous champions of balanced budgets and austerity. Caught in the crosscurrents of economic theories, the G20 leaders at the Toronto summit agreed to disagree on adopting a common approach and chose to allow all to devise their individual policies to revive their ailing economies within the framework of a broad anti-recession strategy.
The focal issues of the summit, pushed by Britain, Canada and Germany, were to cut budget deficits, reduce public debt and embrace belt-tightening fiscal policies at the risk of curtailing welfare expenditures. The United States went along with them though President Barrack Obama warned that world economic recovery remained "fragile" and re-emphasised the need of expansionist policies to support growth. China and Japan did not play any leading role. The former was apparently pleased as the issue of reforming its currency policies was not pressed and the latter was granted a leeway on the matter of handling its staggering public debt.
India and Brazil took it upon themselves to sound the most discordant notes during the summit sessions. Prime Minister Manmohan Singh, an economist by training, warned: "Contractionary policies, if followed by many industrialised countries simultaneously, could provoke a double-dip recession." He called for "firmly" resisting the "threats of new protectionist measures in the industrialised countries." The Brazilian Finance Minister Guido Mantega exhorted "we must not balance budgets on the backs of the world's poorest people."
As if echoing Manmohan Singh, Nobel Prize-winning economist Paul Krugman says in his column in the New York Times that "the real threat is deflation". He fears that the world is "in the early stages of a third depression", the first being the Long Depression of the 19th century and the second, the Great Depression of the 20th century. Writing in the Washington Post, another American economist Robert J. Samuelson is concerned about double-dip recession and has pointed out that unemployment in the 31-member Organisation for Economic Cooperation and Development (OECD) stands today at "46.5 million people, up about 50 per cent since 2007". The chief economic commentator for the Financial Times Martin Wolf is worried that the concerted austerity of Germany, Britain and other industrialised countries may "destroy the recovery".
The Toronto summit has exposed the differences of the G20 leaders and left the world confused about the best way how to combat recession and rebuild the world economy on a sustainable basis. The pledge to "reform the global architecture to meet the needs of the 21st century", which was made at the Pittsburgh summit, seems to have been totally forgotten at Toronto.
The Pittsburgh summit took place when the world economy was on the cusp of the global recession. The situation has since changed. The recession has subsided to a great extent thanks to the Keynesian-type massive bailout and stimulation programmes aimed at the resuscitation of the ailing American and European economies. There are signs of recovery in various economies that were severely affected by the recession. On the other hand, the Greek debt crisis has panicked many, particularly in Europe. They have become wary of Keynesianism, which advocates deficit financing to stimulate the economy and create jobs leading to recovery from a recession. They are now zealous champions of balanced budgets and austerity. Caught in the crosscurrents of economic theories, the G20 leaders at the Toronto summit agreed to disagree on adopting a common approach and chose to allow all to devise their individual policies to revive their ailing economies within the framework of a broad anti-recession strategy.
The focal issues of the summit, pushed by Britain, Canada and Germany, were to cut budget deficits, reduce public debt and embrace belt-tightening fiscal policies at the risk of curtailing welfare expenditures. The United States went along with them though President Barrack Obama warned that world economic recovery remained "fragile" and re-emphasised the need of expansionist policies to support growth. China and Japan did not play any leading role. The former was apparently pleased as the issue of reforming its currency policies was not pressed and the latter was granted a leeway on the matter of handling its staggering public debt.
India and Brazil took it upon themselves to sound the most discordant notes during the summit sessions. Prime Minister Manmohan Singh, an economist by training, warned: "Contractionary policies, if followed by many industrialised countries simultaneously, could provoke a double-dip recession." He called for "firmly" resisting the "threats of new protectionist measures in the industrialised countries." The Brazilian Finance Minister Guido Mantega exhorted "we must not balance budgets on the backs of the world's poorest people."
As if echoing Manmohan Singh, Nobel Prize-winning economist Paul Krugman says in his column in the New York Times that "the real threat is deflation". He fears that the world is "in the early stages of a third depression", the first being the Long Depression of the 19th century and the second, the Great Depression of the 20th century. Writing in the Washington Post, another American economist Robert J. Samuelson is concerned about double-dip recession and has pointed out that unemployment in the 31-member Organisation for Economic Cooperation and Development (OECD) stands today at "46.5 million people, up about 50 per cent since 2007". The chief economic commentator for the Financial Times Martin Wolf is worried that the concerted austerity of Germany, Britain and other industrialised countries may "destroy the recovery".
The Toronto summit has exposed the differences of the G20 leaders and left the world confused about the best way how to combat recession and rebuild the world economy on a sustainable basis. The pledge to "reform the global architecture to meet the needs of the 21st century", which was made at the Pittsburgh summit, seems to have been totally forgotten at Toronto.