The G20 tees up another crisis
I’ve rarely seen as much unanimity regarding an important communiqué as I have around this one — an interminable 27-page effort from the G20 which only serves to underscore the fact that when they can’t agree on what to say, bureaucrats are very good at making up for it with astonishing quantities of sheer blather:
Measures will need to be implemented at the national level and will need to be tailored to individual country circumstances. To facilitate this process, we have agreed that the second stage of our country-led and consultative mutual assessment will be conducted at the country and European level and that we will each identify additional measures, as necessary, that we will take toward achieving strong, sustainable, and balanced growth.
A “consultative mutual assessment”? What could possibly go wrong?
As Chris Giles points out, agreeing on “growth-friendly fiscal consolidation” is easy, because it’s actually meaningless. And so the G20, which is meant to play a crucial international coordinating role, is now just a shop for different heads of state to arrive at a form of words seemingly designed to constrain them as little as possible.
Mohamed El-Erian writes:
The outcome of the G20 is a confirmation of what many expected and feared-namely, and in sharp contrast to the April 2009 G20 London Summit, an inability to reconcile divergent views of the world…
The communique illustrates the extent to which we now live in a multi-polar world with no dominant economic party and with excessively weak multilateral coordination mechanisms. The result is what game theorists label a “non-cooperative game,” with a very high likelihood of sub-optimal outcomes.
In English, the U.S. is going to stay on its borrow-and-spend course, while Europe sees huge fiscal cuts. That, we could do without the G20. And it guarantees that the global imbalances the G8 and G20 have been so worried about since long before the financial crisis are going to get worse rather than better. There’s no solution in sight, which almost guarantees that the world is going to see another crisis, this time surrounding U.S. interest rates and the dollar rather than credit. The only question is when.