The G20 in 2015: What’s the Plan?

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad).

Last weekend, G20 Finance Ministers met in Turkey, and although the resulting communiqué covers a whole host of issues, it is becoming clear that two areas dominate in terms of actual work planned this year: infrastructure financing and financial sector reform.

As Eurodad noted in our scorecard analysis of the G20’s work last year, infrastructure has featured prominently on the G20’s agenda, particularly its push to harness private financing for infrastructure. Actual concrete initiatives have been limited: a tiny Global Infrastructure Hub with an information sharing mandate was the underwhelming centrepiece of last year’s G20 Global Infrastructure Initiative.

However, the underlying efforts to set a new agenda for infrastructure financing continue to be significant, driven by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Existing agendas include the promotion of the idea of an ‘infrastructure asset class’ for institutional investors such as pension funds to invest in – despite the fact that there is very little evidence of any appetite for this – and a push to promote public-private partnerships (PPP), with only limited recognition of their chequered history.

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The Euro Greek Crisis Again Shows the Poverty of Austerity

Philip Arestis and Malcolm Sawyer

One rather obvious conclusion which should be drawn from the experiences of Greece in the past four years or so is that fiscal austerity does not work—in the sense of bringing economic recovery. The IMF forecasts of what would happen under the austerity programme were already indicating that unemployment would increase in the initial phase but recovery would come. The forecasts were that from 2011 there would be positive growth, though output would be some 3½% below its 2008 level. (All the statistics in this piece are derived from OECD Economic Outlook 96 November 2014, Statistical Annex.) Unemployment was forecast to peak at just under 15%. The actual results were much grimmer; unemployment up to 25%, some glimmer of growth only in 2014 (and then nominal GDP declined) with GDP in 2014 some 25% below the 2008 level. These are spectacular failures of forecasting—some of which, at least, could be ascribed to the general IMF failures over the value of the multiplier and hence of the effects of austerity on GDP (see on this score, Blanchard and Leigh, 2013).

The debt to GDP ratio rose from 111% in 2011 (having declined from 135% in 2009) to over 180% in 2014—which looks as though the Greek government ran up further debt. But, of course, the reality was that the ratio rose because GDP shrank by 25%. A high and rising debt ratio appears to go with low (and here negative) economic growth. Is this a confirmation of the Reinhart and Rogoff (2011) thesis? Not really, it is more a refutation since the causation runs from negative growth to rising debt.

The “fiscal compact” is based on two principles—a balanced structural budget and “structural reforms.” Greece has massively reduced its budget deficit (with the consequences that has had for unemployment) to 1% of GDP for 2014. Its primary budget position (that is excluding interest payments on debt) is in surplus to the extent of over 3% of GDP. Further, its cyclically adjusted budget surplus is near 4% and its underlying primary budget surplus over 7%. Against the criteria of the “fiscal compact” this is a massive surplus for which there is no justification.

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The War on Genetically-Modified-Food Critics

Et tu, National Geographic?

Timothy A. Wise

Since when is the safety of genetically modified food considered “settled science” on a par with the reality of evolution? That was the question that jumped to mind when I saw the cover of the March 2015 National Geographic and the lead article, “Why Do Many Reasonable People Doubt Science?”

The cover title: “The War on Science.” The image: a movie set of a fake moon landing. Superimposed: a list of irrational battles being waged by “science doubters” against an implied scientific consensus:

“Climate change does not exist.”

“Evolution never happened.”

“The moon landing was faked.”

“Vaccinations can lead to autism.”

“Genetically modified food is evil.” WHAT?

Genetically modified food is evil? First of all, what business does “evil” have in an article about scientific consensus? Sure, some people think GMOs are evil. But isn’t the controversy about whether genetically modified food is safe?

More important, what was such an item doing on a list of issues on which the vast majority of scientists would indeed have consensus? How in the world does author Joel Achenbach define “scientific consensus?” How about 95 percent of the peer-reviewed literature, as in the case of climate change? Near 100 percent, as in the case of the lack of any link between autism and vaccines, or on evolution, or the reality of the moon landing?

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Will Quantitative Easing Solve the European Economic Crisis?

Gerald Epstein

Regular Triple Crisis contributor Gerald Epstein, of the University of Massachusetts and the Political Economy Research Institute, speaks with The Real News Network’s Sarmini Peries about the recent turn toward quantitative easing on the part of the European Central Bank—and why it is unlikely to be effective unless Europe changes course from policies that have undermined recovery in Greece and elsewhere.

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Myopic Vision of Food Security in India

A Critique of the Shanta Kumar Committee Report

Deepankar Basu and Debarshi Das, Guest Bloggers

Deepankar Basu is assistant professor in the Department of Economics, University of Massachusetts Amherst, U.S., and Debarshi Das is associate professor in the Department of Humanities & Social Sciences, Indian Institute of Technology, Guwahati. A shorter version of this article was carried in The Hindu on Tuesday, February 17, 2015.

Within months of assuming office, the BJP-led National Democratic Alliance government set up a High Level Committee (HLC) in August 2014 to restructure, re-orient and reform the Food Corporation of India (FCI). The eight-member HLC was chaired by senior BJP leader, Shanta Kumar, and included prominent economist Ashok Gulati. On January 22, 2015, the HLC submitted its report to the government and made its recommendations public.

In the short run, the committee recommends that the National Food Security Act (NFSA) 2013 be curtailed. The NFSA entails providing subsidized food to about 67%  of the population; the committee recommends that the coverage be brought down to 40%. In the medium run, the committee recommends that the current public distribution system (PDS) be replaced by a cash transfer system. This will mean that the State will no longer have to be responsible for distributing food to vulnerable sections of the population. Hence, the State will no longer need to procure food from farmers, and store it. Since the current system of procurement, storage and transportation is primarily managed by the FCI, the medium-term vision of the HLC implies that the FCI can, in due course, be folded up.

While there are other important details whose implications need to be studied seriously (e.g., encouragement of contract labour), it seems safe to suggest that the overall thrust of the HLC’s recommendations, if implemented, would whittle down operation of the FCI in the short run and completely dismantle it in the medium run. The HLC has advanced two broad set of arguments as justifications for its recommendations. Critical scrutiny shows that both these sets of arguments are fallacious.

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The Reregulation of Cross-Border Finance

Kevin Gallagher

Regular Triple Crisis contributor Kevin Gallagher, of Boston University and the Global Economic Governance Initiative (GEGI) summarizes the key arguments in his new book Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance. He focuses on the re-emergence of capital controls since the 2008 financial crisis—with developing-country governments reining in cross-border capital flows from “flying into their country, flying out”—and how the “policy space” emerged for such measures.

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Solving the Greek Debt: An Attractive Compromise

Stephany Griffith-Jones and Inge Kaul

There is an urgent need to reach a solution of the Greek debt problem that is effective and beneficial for Greece, its Eurozone creditors, as well as for the whole European and global economy.

Fortunately, such a solution exists and is gaining support. It is the proposal that suggests transforming the debt that Greece owes to Eurozone governments into GDP-linked bonds. Such bonds would link servicing of interest payments to the growth of the Greek economy.

They would not reduce the total value of the debt for the creditors and, thus, satisfy the creditors’ key demand: no debt reduction for Greece. But what GDP-indexed bonds would do is reduce debt servicing in the short term for Greece, whilst its economy is on a recovery path and not yet growing sufficiently. Granting Greece such a breathing space would be good for its economy and for its creditors. Giving growth a chance to pick up again would strengthen Greece’s capacity to meet its debt obligations in the future and lower, if not altogether remove the risk that taxpayers in the Eurozone countries may ultimately have to pay for Greece’s debt burden.

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Another Game-Changing Election in India

Jayati Ghosh

Even in the hectic and constantly changing political life of India, there are some watershed moments. The elections of May 2013 clearly generated such a moment, when the “Modi wave” and first past the post electoral system enabled the Bharatiya Janata Party (BJP). despite getting only 31% of the total votes, to win a majority of seats in the Lok Sabha (the lower house of the Indian Parliament), transforming the national scene. The elections just concluded for the assembly in the city of Delhi, which is not even a full-fledged state, may seem unimportant by contrast, but they too have transformative potential.

Since the national election victory, the BJP—led by Narendra Modi and his henchman Amit Shah (now President of that party)—has seemed unstoppable, winning several state assembly elections and aggressively establishing dominance over its allies, as Modi and Shah have established dominance within the party. The honeymoon period has been extended because the media too generally fell in line, lauding every pronouncement of the Prime Minister and celebrating every declaration of supposedly “new” policies as heralding dramatic transformation.

There were some rumblings of discontent. Some tried to point out that there was a lot of talk without too much content. Thus, policies announced in a blaze of publicity (such as the Swacch Bharat or “Clean India Mission,” or the “Make in India” campaign) were just rehashed versions of policies of the previous government, with slicker media-savvy presentation but less public money. Some noted that the Prime Minister seemed to be more focused on self-promotion and grandiose foreign policy gestures, trying to highlight his supposed “personal chemistry” with various foreign leaders, ranging from U.S. President Barack Obama to Australian Prime Minister Tony Abbott.

Still others observed that many of the promised policy changes of the Modi government had yet to occur, and that too many blatantly pro-big business measures were taken opaquely—including changing clearance rules to allow more environmentally undesirable investment and passing an ordinance that would reduce effective compensation to those who lost their land because of new projects. Instead of the promised “development and good governance,” the so-called “fringe elements” of the ruling coalition that create communal disharmony and attacks on non-Hindu religious communities were given free reign, with discreet silence on the part of the top leadership. Within the BJP, many senior leaders felt marginalized, alienated from and even humiliated by the new axes of national power.

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Fast Track to Financial Instability

Kevin P. Gallagher

In his State of the Union speech, President Obama said he would submit a bill to Congress that would grant him the fast track authority to finalize the Trans-Pacific Partnership (TPP)—a trade pact with Pacific Rim countries such as Japan, Malaysia, Peru, and Chile.  While free trade has brought benefits in the past, tariffs in the world economy are at an all time low and new deals like the TPP offer few new gains in terms of growth and jobs for the American people.

Moreover, deals like the TPP now come with very high risks.  Given that tariffs on goods are so low, these sorts of agreements have rebranded bona fide economic regulations as “barriers to trade,” blurring the distinction between protectionism and measures to protect the well-being of the middle class.

According to the most optimistic economic models, the TPP would only boost U.S. GDP between one and three tenths of one percent by 2025.  This essentially amounts to a rounding error of just over one hundredth of a percent per year over the next ten years.  Even these tiny gains are likely overestimates, given that they assume full employment for the U.S. and all trading partners.

Alongside these small gains, the TPP comes with high costs.  The negotiations are conducted in a highly secretive manner, but leaked text on foreign investment and financial services reveals that the TPP rebrands regulations to protect workers and the general public from financial crisis as unfair barriers to trade.  When signing on to “market access” provisions—a cornerstone of the TPP–nations must “liberalize” regulations that are seen as lessening the profits of Wall Street.

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Crisis or Opportunity for Greece?

Martin Khor

Last week a political earthquake took place in Greece when the new party Syriza won the national election on an anti-austerity platform.

The new prime minister, Alexis Tsipras, appointed prominent critics of the creditor-imposed austerity policies to the Cabinet and indicated the new government intends to re-negotiate the bailout loan conditions and also seek debt relief.

The new government looks ready to take on its troika of main creditors (the European Commission, Interna­tional Monetary Fund and European Central Bank). Some European lea­ders have called on the government to stick to the obligations linked to the bailout loans. The big fights ahead have great significance not only for Greece but the whole of Europe.

It is a climax of the clash of ideas and policies that has taken place since the start of the global financial crisis in 2008 on how countries fa­cing debt and recession should get out of their dire situation.

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