LONDON Aug 26 The immediate crisis may be over
but G20 policymakers meeting next week must still find a way to
rebalance the global economy if the world is not to be doomed to
repeat the past.
Almost a year after the entire financial system narrowly
averted collapse, finance ministers and central bankers from the
Group of 20 rich and developing nations will gather in London on
Sept 4-5 to discuss what happens next.
Since their leaders last met in April, the worst global
recession since the Great Depression seems to be ending with Q2
data in a number of countries showing growth and stock markets
powering ahead on optimism the good times will soon return.
But G20 policymakers will be more guarded even though
discussion of exit strategies from the huge fiscal and monetary
stimulus thrown into their economies will be high on the agenda.
"It is vital that countries have an exit strategy but we
are very clear that interventions need to remain in place for as
long as needed," a UK government source told Reuters on
The world's top central bankers meeting in Jackson Hole,
Wyoming last week had much the same message. They said the
extraordinary stimulus from governments and central banks must
not be withdrawn too soon. [ID:nN23121486].
While the G20 will tread a fine line between trying to
convince markets it has credible plans to withdraw the stimulus
in an orderly way and ensuring it does not derail the recovery,
analysts warn it also has to act on settling global imbalances.
"This G20 meeting is as important as the London summit in
April," said Gerard Lyons, chief economist at Standard Chartered
bank in London. "The two issues that stand out are exit
strategies and global imbalances."
British Prime Minister Gordon Brown has made finding "future
sources of growth" -- or how the world economy can survive
without relying just on the overstretched U.S. consumer -- his
pet subject and this will also feature high on next week's
Economists and officials say finding a credible answer to
the question could set the course of the global economy for
FUTURE SOURCES OF GROWTH
While there has long been agreement on paper that countries
running large current account deficits need to save more and
those with huge surpluses should be spending more, that has been
harder to achieve in practice.
So far there is little sign the crisis has changed the
strategies being pursued by surplus countries that have their
own domestic politics in mind.
"Germany's (Chancellor Angela) Merkel has made it abundantly
clear that the German export machine will not be one of the
casualties of the crisis," said Marc Chandler, global head of
currency strategy at Brown Brothers Harriman in New York.
"In Japan, the DPJ (opposition Democratic Party of Japan)
may be swept into office on Aug 30, but it shows no vision or
desire to undermine the only part of the economy that has shown
any life -- exports."
But perhaps the biggest issue likely to keep imbalances in
play may not get much mention at next week's meeting -- the
perceived undervaluation of Asian currencies, such as China's
which are linked to the dollar.
"Currencies are clearly an important part of the story,"
But officials have indicated little on the formal agenda to
push China to allow its yuan currency to rise. The United States
has, in fact, been taking a softer tack on Beijing during the
crisis after years of hectoring with little effect.
Economists say that if anything the latest crisis may
encourage countries to build up their foreign exchange reserves
to protect themselves from volatile capital flows, much as the
Asian crisis did in 1997-98.
"The rebuilding and expanding of the reserve war chest may
in turn be recycled and help finance the budget deficits of
industrialised countries," said Chandler. "Sound familiar?"
Nor is there much concrete expected that will radically
change the way financial markets operate to prevent another
crisis happening despite lip-service to ending risky behaviour.
"It can't be return to the old ways of high risk behaviour
by financial institutions," the UK source said.
French President Nicolas Sarkozy has announced new limits on
bonus payments to traders and said he would press his G20
partners to adopt the same standards as Paris.
He has said the G20 would consider setting upper limits on
bonus payments or setting a global tax but few expect anything
so radical to get off the ground.
(Reporting by Sumeet Desai; editing by Stephen Nisbet)