Spotlight G20: The rules of austerity are still marked by a double-standard ideology

Bhumika Muchhala, guest blogger, part of our 2011 Spotlight G20 Series

Yet again, the G20 Summit, held in Cannes last week, yielded insipid communiqués that merely rehashed past commitments, outlined policies the G20 countries are already doing, and reiterated the EU’s party line to assuage markets on the eurozone debt crisis.  The FT reports that the G20 has once again proved meager results despite lofty promises, casting its own irrelevance against the gloomy realities of the world economy.

Drawing a parallel between the ineffectual coordination in the G20 forum with that of the EU’s internal faultlines and lack of democratic policymaking, analysts have remarked that the G20 is a microcosm of the multitude of global malaise: persistent imbalances, the failure of democratic and collective action, and the lack of structural reforms.

At the core of the G20’s macro-policy agenda is an elite consensus that there is too much sovereign debt in the world and so governments have to reign in public budgets through fiscal austerity.  As both Paul Krugman and Gerry Epstein have pointed out, this was the case in last year’s Seoul summit, which called for ‘fiscal consolidation programmes’ in developed countries despite massive levels of unemployment.

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Spotlight G20: Mario Draghing the Feet on Monetary Policy: Or what should central banks do

Matías Vernengo, part of our 2011 Spotlight G20 Series

Central Banks have been at the epicenter of the current crisis, and have been, for good and for bad, fundamental for the policy response mounted to avoid a new Great Depression. Recently Christina Romer argued that the Fed should start targeting nominal Gross Domestic Product (GDP) instead of inflation.  As I noted previously (see here), this is strange since it is far from clear that the Fed actually targets just inflation, or that targeting nominal output would make any significant difference.

Further, the idea that a central bank has the ability to actually hit a targeted level of output, or inflation for that matter, under the current circumstances in particular, is wishful thinking. Central banks can ease the credit conditions by reducing interest rates, a range of rates from the short to the long, to stimulate spending, and pump money into the system, fundamentally to avoid systemic crisis caused by bankruptcies. The ability of Ben Bernanke or Mario Draghi, the newly appointed head of the European Central Bank (ECB) that reduced the rate of interest in Europe as his first measure (see here), to further reduce interest rates and with that help the staggering recovery in the US or the free fall in the periphery of Europe is very limited.

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Spotlight G20: Greek tragedy sours Summit

Martin Khor, part of our 2011 Spotlight G20 Series

Last week saw pure drama on an epic scale as the Eurozone plan to exit its debt and currency crisis almost crumbled when the Greek Prime Minister announced he needed a national referendum to approve a bailout programme.

This bombshell came last Monday on the very eve of the G20 Summit in Cannes which had been expected to cheer the European leaders for finally getting their act together.

Instead, the G20 Summit became another new act in the Greek and Euro tragedy.

The summit concluded last Friday without any concrete results. “Global recession grows closer as G20 summit fails,” warned the London Guardian.

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Spotlight G20: Beyond the G20: Mitigating the Costs of Global Imbalances in the Absence of Global Coordination

Kevin P. Gallagher, part of our 2011 Spotlight G20 Series

The absence of a global regime to prevent and mitigate financial crises and a reluctance to resort to the International Monetary Fund for assistance has led emerging market and developing countries to accumulate vast sums of foreign reserves as an act of ‘self-insurance’. If a nation has a backstop of foreign reserves and an external shock such as a financial crisis results in capital flight from such a country, the nation can use those reserves to stabilize the currency.

The insurance incentive was acute in the run up to the crisis, but the incentive to accumulate reserves in the wake of the global financial crisis has been even stronger given the scale of the crisis and the lack of an adequate response to it in terms of global economic governance. Not surprisingly then, reserve accumulation in developing countries has not only continued to increase in the wake of the crisis, but has increased at a faster rate than previous to the crisis. What is more, excess reserve accumulation has been costly at both the national and global levels. Nationally, because the opportunity cost of accumulating reserves can be high, globally because of the global imbalances created by surplus and deficit nations.

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Spotlight G20: Who Calls the Shots on Food Security?

Frequent Triple Crisis contributor Sophia Murphy analyses the G20’s chilling effect on strong initiatives at the UN level to address food security issues, in a new commentary from the Institute for Agriculture and Trade Policy. It builds on Jennifer Clapp’s recent blog post and the recent interview with Clapp and Timothy A. Wise:

ROME, OCTOBER 2011 – Multilateralism is in crisis. It is perhaps most evident in the painful and truly frightening failure of governments to come to grips with the implications of climate change. But it was also evident on a much less well-publicized stage in mid-October in Rome, where governments were gathered at the U.N. Committee on Food Security (CFS) to discuss food price volatility…

Read the full commentary.

Spotlight G20: Emerging Economies Join G20 Coalition to Tax Speculation

Sarah Anderson, guest blogger, part of our 2011 Spotlight G20 Series

Talk about piling on. Bill Gates, the Pope, the Archbishop of Canterbury, 1,000 parliamentarians, 1,000 economists, the world’s major labor leaders, Occupy Wall Street protestors, Oxfam and other major development groups, thousands of nurses, the World Wildlife Fund and other major enviros, Michael Moore… It might be easier to list who didn’t come out in support of a Wall Street tax in the lead-up to this week’s G20 summit in Cannes.

The outcome?  No home run, but some measurable steps forward.

No one expected a G20-wide agreement on taxing financial transactions at this summit.  Despite rising support, opposition from the United Kingdom, Canada, and the United States, among others, is still just too strong.  But there were high hopes that a subset of European and non-European G20 countries would launch a “coalition of the willing” in support of the tax.

This goal was achieved.  In his concluding press conference, summit host French President Nicolas Sarkozy announced that South Africa, Brazil, and Argentina were joining the list of current supporters, which inlcude France, Germany, Spain, the European Commission, and several other European governments.  Sarkozy said he hopes to move towards implementation in early 2012.

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Spotlight G20: The eurozone debt crisis and the G20

Kevin P. Gallagher, part of our 2011 Spotlight G20 Series

As Tuesday’s headlines from Greece prove, the latest eurozone rescue plan is far from a long-term solution. But it should prevent this week’s G20 meeting from being completely hijacked by Europe‘s short-term woes.

Instead of another round of fire-fighting, the G20 should address the larger issue of a mechanism to prevent sovereign debt crises in the future from spiraling like this one. If they don’t, Greece and defaulters of the future will suffer the fate of Argentina – a nation whose sovereign debt restructuring threatens to be taken over by trade and investment treaties.

As political economist Eric Helleiner has shown, with every crisis comes a new proposal for a sovereign debt workout mechanism that meets a sticky end. Mexico proposed a mechanism in 1933; the United States a mechanism in early drafts of the IMF articles of agreement in the 1940s; UNCTAD saw such a regime as core to a “new international economic order” in the 1970s; and most recently, the IMF issued a call for a sovereign debt restructuring mechanism, in 2001 in the wake of Argentina’s financial crisis.

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Spotlight G20: G20 Resource List

As the G20 Cannes Summit comes to a close, as part of our 2011 Spotlight G20 Series Triple Crisis recommends checking out the following resources to make sense of what was and was not included in the G20’s agenda and why.

G20 Information Centre, Munk School of Global Affairs, University of Toronto: The G20 Cannes Summit 2011: A New Way Forward
Center for Global Development, Development and the Cannes G20 Summit
Thomas Bernes (CIGI), Prescriptions for the G20: The Cannes Summit and Beyond
Uri Dadush, G20 Must Help Manage Eurozone Crisis
Financial Times Special Report, Overview: Dark outlook piles pressure on leaders
Kevin P. Gallagher, The Eurozone Debt Crisis and the G20
Jose Antonio Ocampo, Stephany Griffith-Jones and Kevin P. Gallagher, The G-20’s Helpful silence on capital controls
Andrew Sheng, The Coming Global Credit Glut
Barry Eichengreen, The G20 and Global Imbalances
IMF’s Special Report to the G20 and Paul Krugman’s response, Surprise Anti-Austerians
Jeffrey Sachs, Obama, the G20, and the 99 Percent

Spotlight G20: Brics should condition Euro bailouts on growth and more say

Kevin P. Gallagher, part of our 2011 Spotlight G20 Series

As the Eurozone crumbles before them, European leaders are begging for help to bailout Greece and create a facility to insure that the crisis doesn’t sweep through Italy, Spain, Portugal and beyond.  For the last sixty years the United States would have been the nation to step up and lead with ideas and resources to the rescue.  Sadly, the US is nowhere to be found: out of ideas and out of cash.  In desperation, Europe has turned to the BRICs.  Rather than direct bi-lateral payments, the Brics are starting to say that they prefer to channel their resources through the IMF. Brics shouldn’t let this crisis go to waste.

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