Everybody for himself in G20 and IMF

G20 Finance Ministers and Central Bank Governors met in Washington on April 18. (G20 photographic library).

G20 Finance Ministers and Central Bank Governors met in Washington on April 18. (G20 photographic library).

The G20 meeting of this last weekend evolved in the shadow of the confrontation between the US Secretary of Treasury, Jack Lew and the German Federal minister of Finance Wolfgang Schäuble. Obviously the subject of this antithesis was the reluctance of Eurozone to apply the American recipe for economic growth. That is the issue of Eurobonds to support the countries in problems, let the ECB increase its refinancing to banks and extend the repayment period of sovereign debts. In short the American ‘advice’ to Europe was to overcome an over indebtedness problem with more debt. The target of this policy mix is to increase effective private and government demand for goods and services and through that to support the world economy. Presumably this will help the US and the developing economies grow faster.

From the European side the answer was equally straight forward and Dr Schäuble was not alone in expressing it. Nor secretary Lew was alone in asking. The German minister found strong support from Jörg Asmussen, Member of the Executive Board of the ECB while the Americans had on their side the developing countries and Japan. No need to say that Schäuble denied the American proposal and made clear to everybody not to expect the Eurozone to grow that fast as to support the rest of the planet.

In short the Europeans stated that their first target is the consolidation of public finance and the deleveraging (reduction of debt to income ratio) of the private and the government sector and only then increase spending to support growth. This means clearly that over the next years Eurozone’s growth will remain almost negligible and in any case the world should not expect anything more from the old continent.

The interesting thing is that this G20 meeting in Washington was concluded without the slightest hint about cooperation. All participants and more so the Americans and the Europeans didn’t back from the above described positions, without any visible hint for a possible compromise. This was a clear divergence from the so far evident efforts for cooperation. Seemingly the world economy has decisively overcome an imminent danger of a major crisis and the policy makers in the big economies think they have the luxury to start looking inwards, to fix their home problems first and then try to help others.

The IMF

The same atmosphere was evident also in the twenty-seventh meeting of the International Monetary and Financial Committee of the IMF, which took place also in Washington this weekend. The communique issued after the meeting starts with the observation “Policy actions have defused key short-term risks.” Given that the IMF was evidently closer to the US and the developing countries’ position and the text clearly put more pressure to Eurozone than elsewhere by saying, “ Growth in the euro area as a whole has yet to materialize. Continued progress in improving public finances is essential in most advanced economies. Where country circumstances allow, fiscal policies should avoid pro-cyclicality, focus on structural balances, and let automatic stabilizers operate fully to support growth”.

In short the IMF urges Germany (Where country circumstances allow) and indirectly the European Central Bank to do a lot more to help the entire Eurozone grow and through that support the US and developing economies’ efforts to accelerate. What pertained to Germany was dully answered by Schäuble. Then came the turn of Jörg Asmussen.

The ECB

This member of the Executive Board of the ECB speaking at the Bank of America/Merill Lynch Investor conference, in Washington DC, on 20 April clarified what ECB can and cannot do. It’s interesting to reproduce here the relevant quote of his speech: “Some may ask: why can’t the ECB do more? Why can’t the ECB be more like the Federal Reserve… or the Bank of Japan, for that matter? Why can’t the ECB engage in quantitative easing or have an employment target?
Those who make these calls must first consider the very different institutional set-up in which we operate. The ECB can only take measures that are consistent with its mandate. Our primary objective is price stability, we do not have the wide mandate which for example the Federal Reserve has.

Second, the structure of the financial market in Europe is very different…

Third, the specific economic challenges we face differ from those in other parts of the world.
In this day and age, where many look to central banks as the ultimate problem-solvers of many economic ills, let me also be clear that there are clear limits of what we, the ECB, can – and cannot – do. We cannot repair unsound budgets. We cannot clean up struggling banks. We cannot solve deep-rooted problems in the structure of Europe’s economies”.

In this way Asmussen made clear that the ECB cannot and will not solve all Eurozone’s problems. Government and private over indebtedness have to be addressed by those who are responsible. In short European politicians and central bankers send the message that Europe will first solve its debt problems and then start spending more money on growth.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

This is how we can make a global green recovery – that also boosts the economy

Global Report on Food Crises reveals scope of food crises as COVID-19 poses new risks to vulnerable countries

The European Green Deal sets out how to make Europe the first climate-neutral continent by 2050, boosting the economy, improving people’s health and quality of life, caring for nature, and leaving no one behind

The dark side of Diwali, festival of lights

Crimea: The last bloodless secession of a Ukraine region?

It takes far too long for a rare disease to be diagnosed. Here’s how that can change

More than one billion people do not have access to electricity. What will it take to get them connected?

GSMA head urges regulators to help Europe regain leadership

COVID-19 pandemic: The war inside our heads

Two shipwrecks add to ‘alarming increase’ in migrant deaths off Libya coast: IOM

CO2 emissions around the world

Guinea-Bissau spotlights threats of organized crime, Sahel terrorism in speech to UN Assembly

Drinking water: new plans to improve tap water quality and cut plastic litter

Climate finance for developing countries reached USD 71 billion in 2017

Coronavirus update: UN scales back major conference

How three US cities are using data to end homelessness

Here’s how we can rethink the way we eat meat

6 ways social innovators are responding to the COVID-19 pandemic

Bigotry makes politicians ‘complicit in the violence that follows’ : UN independent experts

Key economic forum in Russia: New technology a ‘vector of hope’ but also ‘a source of fear’ says Guterres

DR Congo: Ebola response resumes despite ‘risky environment’

‘Our concern now is the southern hemisphere’ – COVID Action Platform convenes leaders on the challenges ahead

COP21 Paris agreement: a non legally-binding climate pact won’t stop effectively global warming while EU’s Cañete throws hardest part to next Commission

Afghanistan: Civilian casualties exceed 10,000 for sixth straight year

Five ways individuals can help save the oceans

UN unveils global influenza strategy to prevent ‘real’ threat of pandemic

UN Envoy urges Burundi leaders to ‘seize opportunities for national unity and peace’

5 lessons for the future success of virtual and augmented reality

‘Concerted effort’ must be made to help 600 million-plus adolescent girls realize full potential: Guterres

How the coronavirus market turmoil compares to 2008 – and what we can do

UN policewoman recognized for ‘speaking up and speaking out’ on behalf of the vulnerable

Antitrust: Commission sends Statement of Objections to O2 CZ, CETIN and T-Mobile CZ for their network sharing agreement

The challenge to be a good healthcare professional

Long-term exposure to air pollution is like smoking a pack of cigarettes a day

Health without borders: How we can Improve International Collaboration in Health Care

GSMA Announces First Keynote Speakers for 2019 “MWC Los Angeles, in Partnership with CTIA”

The Parliament defies a politically biased Banking Union

Austerity lovers to put a break on Renzi’s growth vision for Europe? the Sting reports live from World Economic Forum 2015 in Davos

Amsterdam is getting a 3D-printed bridge

Historic first, as Tolstoy’s War and Peace lands in Geneva, to mark international centenary

Cross-border cooperation: the EU Interreg programme celebrates 30 years of bringing citizens closer together

Renewable energy can get India’s returned rural migrants back to work

Amazon fires: Health Effects, Near and Far

Trump: Hostile to Europe, voids Tillerson’s “ironclad” ally pledge

EU supports recovery and resilience in Nigeria with additional €50 million

Why we need a Paris Agreement for nature

How Sierra Leone is using 3D printing to become a model state

2020 Blue Economy Report: Blue sectors contribute to the recovery and pave way for EU Green Deal

Global Citizen-Volunteer Internships

How young entrepreneurs should be supported: what assistance should governments provide?

Pandemic versus fear

Terrorist content online: companies to be given just one hour to remove it

Why the Greeks forgave Tsipras’ pirouettes around austerity and voted again for SYRIZA

MFF: Commission’s plan “impossible to implement” with Finnish proposal

FROM THE FIELD: Crisis in Kassala FROM THE FIELD: Crisis in Kassala

UN rights chief calls for release of hundreds abducted and abused in South Sudan

5 technologies that will forever change global trade

‘We will not give up on looking for peace for South Sudan’: UN deputy chief

Doctors vs. Industry 4.0: who will win?

Central Mali: Top UN genocide prevention official sounds alarm over recent ethnically-targeted killings

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s