Blog Post

Reflections after the G20 meeting in Mexico

In diplomatic language there is a difference between saying “event B cannot happen because condition A is not fulfilled” and saying “event B will happen if – or even as soon as – condition A is fulfilled”. This distinction helps understand what happened last weekend in the G20 ministerial meeting in Mexico City. A few […]

By: Date: February 29, 2012 Topic: Global Economics & Governance

In diplomatic language there is a difference between saying “event B cannot happen because condition A is not fulfilled” and saying “event B will happen if – or even as soon as – condition A is fulfilled”. This distinction helps understand what happened last weekend in the G20 ministerial meeting in Mexico City. A few hours ahead of the meeting, an agreement on a replenishment of IMF resources of the size asked by Managing Director Christine Lagarde (a “global firewall”), was a non-starter. The US, followed by almost everybody not located between the Atlantic and the Urals, opposed the move arguing that Europe should mobilize its resources first – in the implicit assumption that new IMF money would be used, first and foremost, to shore up European ailing sovereigns. In other words, general feelings were in the nature of the type-1 statement. Instead, what came out from the meeting sounded more like type-2. The passage from the final communiqué (http://www.g20mexico.org/es/centro-de-noticias/discursos/235-communique-meeting-of-finance-ministers-and-central-bank-governors) is worth reading:

We are reviewing options, as requested by Leaders (at the Cannes meeting, I add), to ensure resources for the IMF could be mobilized in a timely manner. We reaffirmed our commitment that the IMF should remain a quota-based institution and agreed that a feasible way to increase IMF resources in the short-run is through bilateral borrowing and note purchase agreements with a broad range of IMF members. These resources will be available for the whole membership of the IMF, and not earmarked for any particular region. Adequate risk mitigation features and conditionality would apply, as approved by the IMF Board. Progress on this strategy will be reviewed at the next Ministerial meeting in April.

More than written words, what impresses is a series of concentric statements around and after the meeting. As usual, Japan sounded the most eager to go ahead, but also Russia talked on the same line, and even China was unusually forthcoming, in the words of central bank governor Zhou: “China is an important member of the G20 … and will do its part…”. Brazil finance minister Guido Mantega, whose Genoese ascendancy probably explains a taste for bargain and compromise, linked emerging country financial support to further progress on IMF representation and governance. Here comes the real issue: this IMF replenishment offers emerging countries a rare chance to enhance their relevance as global partners, attaining two goals in one: strengthening the G20 and their own position in it.

The Mexican meeting unexpectedly achieved an important result: shifting expectations on future G20 meetings (another ministerial in Washington in April, followed by a Summit in the Mexican Baja California in June) from gridlock to agreement. This does not yet mean that agreement will automatically happen: an initial move from Europe (read, Germany) is still needed. Not much, probably; a temporary overlap of the eurozone’s temporary rescue facility (EFSF) with the forthcoming permanent one (ESM) – a choice not opposed by core Europe but so far considered by Germany “unnecessary” – may be enough. The way players are positioned at present suggests progress is possible. The German stance is driven by conflicting forces: on the one hand, a desire to build effective financial firewalls to relief market tensions, also in the interest of an exposed German financial sector; on the other, two countervailing caveats: that of discouraging reform in the European periphery and of alienating domestic public opinions, who loathe open ended support to weaker EU members. The point to be understood, however, is that success on strengthening the IMF would help dispel both fears. The first, because the concession of IMF support, in Europe and elsewhere, will be accompanied by strong conditionality; all the more so in Europe, where a German inspired “fiscal compact” has just been approved. The second because a concerted IMF replenishment, mobilising resources of wealthy emerging nations, would contribute to reduce the burden on German and other core EU taxpayers. Two results in one, also on the European side.

Taking a more general perspective and looking beyond the immediate concerns, an agreement on IMF resources would also help in two ways:

  1. Salvaging, at least for now, the G20 from a slide into irrelevance. Observers hailed the creation of the G20 summit in 2008 and welcomed its crisis management successes between November 2008 (Washington meeting) and September 2009 (Pittsburgh). After this, its weight declined steadily, as a joint paper with Jean Pisani Ferry, forthcoming in the Bruegel website [1], documents. Setting up a global financial firewall, with emerging countries joining forces with the G7 in preserving global financial stability, would be a tonic for the group’s credibility and confirm that the 2008 decision was a right one.
  2. Facilitating a further evolution in the role of the IMF. The IMF has changed a lot in recent years, but its transition from custodian of a system of adjustable exchange rate parities (and financier of temporary imbalances among nations) to guardian of global macro-financial stability (and, accordingly, lender-of-last-resort) was never complete. The latter would entail a much greater flexibility in the Fund’s operational toolkit, including, over time, a presence in the financial markets and in support of illiquid globally relevant financial institutions. The Fund’s articles of agreement, requiring it to act “with or through” national fiscal or monetary agencies, are not necessarily an impediment. The ESM treaty recently agreed among euro area governments contemplates such role fully, prescribing that the European “fund” will not only lend to nations, but also intervene in primary and secondary securities markets and recapitalise banks. The treaty also stipulates that the ESM will intervene, “whenever appropriate and possible”, together with the IMF. A collaboration that may, in the end, prove helpful not only for Europe, but for the IMF itself.

 

[1] The G20: characters in search of an author, by I. Angeloni and J. Pisani Ferry; Bruegel Working Papers, forthcoming.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read about event

Upcoming Event

Jan
22
14:00

A conversation with Jin Liqun, president of AIIB

We are pleased to host Jin Liqun, the president of Asian Infrastructure Investment Bank at Bruegel.

Speakers: Sven Biscop, Guntram B. Wolff and Jin Liqun Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

It is safer to rely on what we know, rather than speculate on what may happen

"Does the Conventional Wisdom About Productivity Need To Be Reconsidered?" On a recent collection of opinions, Marek Dabrowski was invited to give his views on this question.

By: Marek Dabrowski Topic: Global Economics & Governance Date: January 16, 2018
Read article More on this topic More by this author

Blog Post

A few good (wo)men – on the representation of women in economics

Last week, the American Economics Association Annual Meetings held a session on Gender Issues in Economics and later announced that a new code of professional conduct is in the pipeline. In this blogs review we revise the recent contributions on female representation and perception in economics.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: January 15, 2018
Read article More on this topic More by this author

Blog Post

Abenomics, five years in

Five years have passed since Japan’s Prime Minister Shinzō Abe was elected in 2012 and started “Abenomics”, a macroeconomic package based upon the “three arrows” of monetary easing, fiscal stimulus and structural reforms. After five years, has Abenomics worked? We review recent opinions.

By: Silvia Merler Topic: Global Economics & Governance Date: January 8, 2018
Read article More by this author

Opinion

China Fails to Woo U.S. With Financial Sector Opening

China's recent announcement of reforming its financial market has received little enthusiasm from the U.S. despite its potential benefits. The lack of a clear agenda regarding its economic rival has pushed the Trump administration to minor any significant progress of China's reform, and to maintain focus on strategic issues.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: January 5, 2018
Read article

Opinion

Chinese banks’ improved asset quality cannot hide other phantoms

The recent improvement in asset quality cannot mask other growing concerns in China’s banking sector. Beyond liquidity concerns, other structural issues such as low profitability and insufficient generation of organic capital, are emerging.

By: Alicia García-Herrero and Gary Ng Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 20, 2017
Read article More on this topic More by this author

Blog Post

The Republican Tax Plan (2): The debate rumbles on

Reactions to the Republican tax plans continue, concentrating on different aspects of the proposed legislation. We review the latest contributions.

By: Silvia Merler Topic: Global Economics & Governance Date: December 18, 2017
Read article More by this author

Podcast

Podcast

Inclusive Europe: a journey towards integration

How has immigration become an essential part of the EU? What incentives should be made to encourage EU intra-mobility? Why and how should we proceed to foster refugees' inclusion in the EU? Zsolt Darvas and Manu Bhardwaj of Mastercard Center for Inclusive Growth discuss the future of migration within the EU.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: December 14, 2017
Read article More by this author

Opinion

South Korea needs to watch the BOJ rather than the Fed

Due its actual economic structure, South Korea should be more worried about BOJ's extremely lax stance than about monetary policy normalization by the Fed.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 14, 2017
Read article More by this author

Blog Post

The DSGE Model Quarrel (Again)

Dynamic Stochastic General Equilibrium models have come under fire since the financial crisis. A recent paper by Christiano, Eichenbaum and Trabandt – who provide a defense for DSGE – has generated yet another wave of reactions in the economic blogosphere. We review the most recent contributions on this topic.

By: Silvia Merler Topic: European Macroeconomics & Governance, Global Economics & Governance Date: December 11, 2017
Read article More on this topic More by this author

Blog Post

Moroccan job market issues, and labour trends in the Middle East and North Africa

Morocco is an interesting case of structural labour market disequilibrium despite respectable growth, and illustrates the issues facing the region’s oil-importer countries

By: Uri Dadush Topic: Global Economics & Governance Date: December 7, 2017
Read article More by this author

Blog Post

The European Union with the Community of Latin America and the Caribbean: where do we stand?

Latin American and Caribbean countries have deep historical, political, cultural, and economic ties with Europe, and cooperation between the two regions has been intensifying recently. Here we report some of the main trends in trade, foreign direct investment, and agreements between the European Union and The Community of Latin American and Caribbean States, the European Union’s official counterpart in the bi-regional strategic partnership that commenced in 1999.

By: Francesco Chiacchio Topic: European Macroeconomics & Governance, Global Economics & Governance Date: December 5, 2017
Load more posts