G20 meetings and the Economic Crisis– Differences and Action Plan

The G-20 leaders met in London in April 2009 and the summit covered the status of the financial crisis, world economy, and future measures to be implemented by G-20 members. It presented differing points of view and approaches in Europe, U.S. and Asia.  During the meeting US sough stimulus spending and Europe more regulations.  Emerging markets pressed for more power sharing, more direct investment and less protectionism.  Among the summit’s decisions were the additional funding to the IMF that may fuel growth, more regulation expected with the establishment of the Financial Stability Board (FSB) as well as a commitment to pursue resolutions and breakthroughs in the areas of international trade (Doha round) and green investing.  You may read the official statement at:  http://www.londonsummit.gov.uk/en/media-centre/latest-news/?view=News&id=15892812

In attempting to explain opposition to further stimulus spending, that was more strongly expressed by Germany, some observers claim that the debate fails to take into account differences between the U.S. and European economies such as Europe’s generous welfare states, that mitigate effects to society and economy in recessions as well as its defined benefit pensions plans.  On the other hand the US Treasury Secretary Geithner urged that there’s a need for the rest of the world, to stimulate demand at home “We must set ourselves on a path so that one country, or group of countries, does not consume in excess while another set of countries produces in excess,…”, “American people and investors (around the world) need to understand that we will have the will and the commitment as a country to go back to point that we are living within our means,..”  German Finance Minister Peer Steinbruck said however later this year that Germany has to strengthen internal demand to reduce dependence on foreign trade.

Apart from differences in social systems and structure of the economy one has also to take into consideration circumstances in the respective banking sectors as well as the relative size of spending to the GDP.  Since the beginning of the crisis governments around the world have committed a total of more than $2.6 trillion to bail out banks and jump-start growth. In addition, they have promised to guarantee $2.7 trillion-plus in loans.  That accounts for 21% of GDP for the UK, 16% for China, 7% for Germany, 6% for the US and 2% for France, according to FT data.  These figures have alerted investors that raised concerns over inflation and the value of US$ denominated investments and country ratings elsewhere.

Stimulus and Bailout Plans to Country GDP

Stimulus and Bailout Plans to Country GDP

Source: Germany Says Its Spending Package Is Already Big Enough  Wall Street Journal, March 12, 2009 and data compilation from “Adding Up the Global Bailout”, Business Week, 1-Dec-08

The IMF says that as much as two thirds of the $4 trillion in bank write-downs are yet to be revealed. U.S. property prices are a long way off a strong recovery, which will go on undermining mortgage-backed securities. On the positive site though confidence and appetite for risk has returned to investors as exhibited from the rebound in stock markets.  The following months will certainly be interesting with the debate shifting to the length and pace or recovery. 

A very interesting discussion on the G20 was held at NYSSA with the participation of dignitaries from Germany, India, Czech Republic and US scholars in April 2009, coorganized by the EU-USA NGO www.euusa.org

Related Articles: The G20 Wishlist“, FT March 11 2009,  Industrial Nations Celebrate-Trillion Dollar Compromise, Spiegel April 03 2009, Geithner urges global effort to tamp crisis Reuters, Apr 22, 2009Secretary Timothy F. Geithner, Remarks before The Economic Club of Washington US Department of Treasury April 22, 2009,  Czech PM attacks Obama spending BBC Wednesday, 25 March 2009, FACTBOX – EU leaders’ messages to G20 summit on April 2- Reuters, March 20, 2009, Germany Says Its Spending Package Is Already Big Enough  Wall Street Journal, March 12, 2009, China’s Stimulus Package Boosts Economy, Business Week, April 22, 2009, Asia urged to rethink growth policies amid crisis. Associated Press Stephen Wright, AP Business Writer May 3, 2009, Adding Up the Global Bailout, Business Week, 1-Dec-08, Credit Crisis: Over at Last? Business Week, June 4, 2009, Germany must expand domestic demand, Steinbruck says, BBC 25 June 2009

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