The G20 gathering of the world’s industrial economies that constitute 80% of the world’s GDP took place as the global economy struggles to grow in any sustainable way. The initial response to the global financial crisis three years ago saw a raft of fiscal and monetary policies to overt economic collapse. Capitalist governments used nationalisations, stimulus spending, Quantitative Easing (QE) – the electronic equivalent of printing money, deficit spending and the reduction of interest rates to near zero percent in the hope that they could kick start their stalled economies.
Rhetoric aside there was always only going to be one issue that mattered on the agenda: countries, namely China, using currency devaluation to steal competitive advantages over rivals.
2010 was meant to be the year the world economy consolidated the gains made from the previous year. The multilateral approach that symbolized the early reaction to the financial crisis has however begun to crumble with many economies turning to protectionist measures irrespective of its impact on other nations.
The strains were first seen at the June G20 gathering in Canada where the US called for a continuation of stimulus which would encourage consumer spending and stimulate the economy with new jobs and allow the recovery to take hold. Europe however called for austerity, as the various fiscal stimulus plans and Quantitative Easing was creating even more debt in Europe – the Greek debt crisis also caused Europe to focus on individual strategies for economic recovery rather than a global approach.
These differences have continued to sharpen as the G20 gathered in Seoul. Mohamed El-Erian, chief executive of Pimco, the world’s largest bond investor, said: “A once promising global response has now been replaced by inadequately co-ordinated national economic policies and growing frictions among countries.”
This time the G20 agreed a vague set of “indicative guidelines” to enhance the existing international process aimed at generating more balanced global growth. In essence they papered over the currency wars and agreed at a future date to discuss what to discuss.
There are however more fundamental and underlying issues at play then the specifics of the conference:
- Sino-US economic difference continues to grow as China has now become the second largest economy in the world. America’s inability to extricate itself from its wars has led China to take a much more confident approach towards US, not just in the global economy, but in Africa and in the Pacific. Whilst many are calling this the rise of the rest, the US has clearly weakened in the last decade in unilaterally defining the global order.
- Though the US accuses the rest of the world for causing the imbalances Obama’s administration has increased tariffs in the last year to protect US industry and resorted to Quantitative Easing (QE) to devalue the dollar.
- The collaborative approach to the global economic crisis in 2010 is turning more and more to economic nationalism with each individual state looking to solve its own economic malaise irrespective of the impact on rivals.
Unable to address real underlying concerns and with each country going its own way G20 is increasingly becoming irrelevant.