The world’s leading economies set an objective on Saturday to boost growth and jobs at the end of a weekend of high-level meetings, but undermined their ambitions with sharply differing views of the necessary policies.
Tharman Shanmugaratnam, chairman of the International Monetary Fund’s governing body, said: “We’re not fully past the crisis, but by comparison to the meetings a year ago, there was a much stronger focus on growth and jobs”.
After a week of informal and formal meetings, the big questions hanging over the still sickly global economy remained, with little meeting of minds on the blame for a weak recovery, optimal fiscal policies, the effectiveness of monetary stimulus and the spillovers from one country’s policies to another.
Reflecting the lack of consensus, Mr Tharman added: “There is no single bullet that will get us to normal growth and some normality in jobs”.
Japan came to the meetings fearful that it would be criticised for doubling the money it plans to have in circulation, a move that has sent the yen tumbling, but its action brought few brickbats.
Dropping his language that loose monetary policy was part of a “currency war” against emerging economies, Guido Mantega, Brazil’s finance minister, described Tokyo’s revitalised policy as “a new and bold program of economic growth, based on fiscal and monetary stimulus and structural reforms”.
But the relatively warm reception given to Japan was a notable exception to more usual sniping from finance ministers that others are to blame to their woes and those of the global community.
The US blamed Europe for the fragile demand with Jack Lew, US Treasury secretary, saying that “stronger demand in Europe is critical to global growth” in his submission to the IMF’s governing body.
Aiming his fire at China and Germany, he also argued that countries with large trade surpluses needed to more to aid global rebalancing in a stronger growth environment. “Much more needs to be done to promote effective global rebalancing, which requires stronger demand in surplus countries and continued progress toward greater exchange rate flexibility,” Mr Lew said.
Rejecting the US criticism, Wolfgang Schäuble, German finance minister, said that the risks to growth stemmed from large fiscal deficits in advanced economies such as the US. “Delaying necessary adjustments would further aggravate risks for the prospects of a lasting and fundamentally sound global recovery,” he added. China believes that its economic strategy to reorientate its growth towards domestic consumption already meets US demands.
As part of the battle over who is to blame for the weak global economic recovery, the US claimed a victory in removing hard commitments to stabilise debt from the G20 communique. A senior Treasury official, who declined to be named, said that the statement had put much less emphasis on debt targets and this reflected the change of mood. .
But this interpretation was immediately challenged from European delegations, one of whom said there had been an acrimonious stand-off between the US and Germany which could not be resolved at the G20 meeting.
Anders Borg, Sweden’s finance minister, highlighted the European concern that it was the US and Japanese inability to sort out its budgets that represented the problem. “The unsustainable fiscal situation in the US and Japan is a source of concern and uncertainty. Credible medium-term fiscal plans should be promptly developed,” he said.
Mr Schäuble said: “The commitment by advanced economies to a clear and credible downward path of general government debt levels could be strengthened by an agreement on an ambitious common debt reduction anchor”.
Disagreements over the best strategy were not limited to fiscal policy and growth. Arguments also raged all weekend on the appropriate role of monetary policy and exchange rates.
The US insisted the appreciation of the renminbi had not gone far enough, with Mr Lew, saying “the process of exchange rate adjustment in China remains incomplete and more progress is needed”.
Even though Japan met little resistance to its new policy, not everyone was happy. Hyun Oh Seok, South Korean finance minister insisted the plunging yen remained a “concern” and urged an orderly exit from extraordinarily loose monetary policy.
To reflect the concerns of South Korea among others, the IMF agreed to establish a new work stream on how advanced countries can exit from extraordinarily loose monetary policy.
Christine Lagarde, IMF managing director said: “You have this double concern: first there is more [monetary stimulus] and what will be the consequences, what will be the spillover effects, for all economies not only emerging market economies . . . And a second fear which is exactly the opposite of that one is what happens when it stops and what is the exit route and how smoothly does it happen.”
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