Reuters blog archive
from The Great Debate:
Today, the International Monetary Fund announced yet another a reduction in its global growth projections for 2014, with its estimate of U.S. growth also reduced (citing reduced government spending, but not the present U.S. government shutdown -- or the heretofore unthinkable notion of the U.S. government defaulting on its obligations). Despite the seeming urgency of global economic slowdown, when world leaders attended their annual fall confabulation at the United Nations in New York last month, they focused on the diplomacy of physical security (Syria, Iran, etc.). Thus another year has passed in which global economic security issues were on no one’s reported agenda.
Policy makers continue to fail to appreciate that the most formidable economic challenge today lies in the area outside the borders of any one nation or region -- and that multilateral action to address this challenge is arguably more important than efforts at increasingly less-effective internal stimulus.
Present-day economic imbalances -- particularly those stemming from the rapid emergence of the post-socialist nations over the past 15 years, with their associated supply of excess labor, productive capacity and global capital, relative to demand -- have hamstrung the economies of the advanced nations. Such economic dislocation can no longer be resolved by any one power, or even by two or three. Indeed, there is enormous risk today of unilateral or bilateral actions being viewed by players left out of such actions as economically threatening or even hostile, leading to economic countermeasures. The issue is compounded by the complexity of the relationships among and between developed nations on the one hand and emerging ones on the other. It is hard to imagine moving beyond a global economy that is just getting by, and therefore at material risk of new and deeper crisis, without a more open dialogue among the Group of 20 (G20) nations and proactive steps toward mutual accommodation.
Yet, since the central banks of the developed world have managed to more-or-less stabilize their economies -- however tenuously -- discussion of a global grand bargain focused on rebalancing international trade and finance has been all but absent. This is unfortunate, as it makes it unlikely that the advanced nations will be able to return to their potential growth trajectories for some time to come.
Greece will unveil its draft 2014 budget plan which is expected to forecast an end to six years of recession.
The draft will include key forecasts on unemployment, public debt and the size of the primary surplus Athens will aim for to show it is turning the corner. The government has said any further fiscal belt-tightening will not bring cuts in wages and pensions and that savings will be generated from structural measures.
from The Great Debate:
The recent focus on what divides world leaders, from Syria to the euro zone, has obscured the significant agreements reached at the Group of 20 meeting in St. Petersburg earlier this month. One of the most important was support for free trade and opposition to protectionism.
We can now build on this momentum, as well as other trade liberalization efforts, to achieve meaningful progress at the World Trade Organization ministerial meeting in Bali in December.
from Hugo Dixon:
Lehman Brothers’ bankruptcy five years ago crushed the global economy, turfed millions of people out of their jobs and left governments groaning under hefty debt burdens. Since then, policymakers have been beavering away to make sure that a similar calamity never happens again. Measures to address many of the key problems have been taken or are in the works. But if a Lehman went bust today, there would still be havoc.
The main success has been in building up the capital cushions banks have to withstand shocks. Since the end of 2009, the big global banks have increased their shareholder capital by $500 billion – the equivalent of 3 percent of their so-called risk-weighted assets, according to the Financial Stability Board (FSB), the organisation tasked by the G20 countries to fix the financial system. They are also on track to meet tighter global standards nearly five years ahead of the deadline.
The G20 will wrap up with entrenched positions on Syria and a little more entente over the emerging market turmoil prompted by the Federal Reserve’s impending move to slow the pace of its dollar creation programme.
The BRICS are plugging away with their plan for a $100 billion currency reserve pool to help calm forex volatility but officials admitted this is still a work in progress and won’t be deployable soon.
from The Great Debate:
Low expectations surround the G20 meeting in St. Petersburg on September 5-6.
President Barack Obama’s decision to cancel the pre-G20 summit with Russian President Vladimir Putin means the big photo op will likely be the two leaders awkwardly trying to avoid each other. The other headline-making issues in U.S.-Russian relations -- Syria, nuclear weapons reduction, missile defense -- also appear off the table now. There is one timely matter, however, that resonates with Washington, Moscow, and the entire G20 -- the continuing fight against offshore tax havens.
The Cyprus financial collapse in March focused world attention on the outsized role played by offshore banking zones in international tax avoidance and money laundering. Though Russian depositors were the primary victims here, Moscow appeared indifferent to this unprecedented expropriation by Cyprus of the assets of Russian citizens. Putin proved unwilling to help those he viewed as tax-evading oligarchs and corrupt bureaucrats -- as well as a few legitimate businesses.
Manufacturing PMI surveys for euro zone countries and Britain will be the latest litmus test of the durability of fledgling economic recoveries.
Even the readings from Spain and Italy have shown improvement over the summer so it may well be that they are the most interesting given we’ve already had flash readings for the euro zone, Germany and France which showed business activity across the currency bloc picked up faster than expected in August.
from Global Investing:
What will save the Indian rupee? There's an election next year so forget about the stuff that's really needed -- structural reforms to labour and tax laws, easing business regulations and scrapping inefficient subsidies. The quickest and most effective short-term option may be a dollar bond issued to the Indian diaspora overseas which could boost central bank coffers about $20 billion.
The option was mooted a month ago when the rupee's slide started to get into panic territory but many Indian policymakers are not so keen on the idea
from Anatole Kaletsky:
Margaret Thatcher used to say that “There is no alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall -- you can stop banging your head against a brick wall. The G20 Finance Ministers’ meeting in Moscow last weekend may have marked such a moment of revelation, when governments around the world gave up on fiscal and financial austerity, and recognized that growth based on consumption, borrowing and rising house prices is better than no growth at all.
It is now nearly five years since the Lehman crisis and throughout this period politicians and economists have been obsessed with avoiding the mistakes that supposedly produced the crisis. They have been trying to reduce debts, both in the public and the private sectors; to make their banks behave more cautiously; and to “rebalance their economies” away from their over-dependence on consumption, services and finance in favor of supposedly more sustainable economic activities such as saving, exporting and manufacturing. The virtues of saving, exporting and manufacturing are so much taken for granted these days that it is easy to forget the novelty and implausibility of the rebalancing concept.
By Pierre Briançon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The G20 is adept at creating the illusion of movement. Ever since it acquired some relevance in the wake of the global financial crisis, the club of the world’s largest economies hasn’t shied away from bold statements on the need for international cooperation or regulation to achieve financial peace and happiness. This year, the group’s finance ministers are mad as hell about tax evasion by multinational corporations. They really can’t take it anymore.