Blog Post

Some light in the fog

The good news is that the G20 summit seems to have been more forceful in addressing the impending risks to the international economy than last minute expectations implied. A dubitative form is necessary, however, because the signs from Los Cabos are uncertain and partly contradictory and also because a lot will depend on follow-ups. The […]

By: Date: June 20, 2012 Topic: Global Economics & Governance

The good news is that the G20 summit seems to have been more forceful in addressing the impending risks to the international economy than last minute expectations implied. A dubitative form is necessary, however, because the signs from Los Cabos are uncertain and partly contradictory and also because a lot will depend on follow-ups.

The central message in the final statement, “Euro Area members of the G20 will take all necessary policy measures to safeguard the integrity and stability of the area” would in itself be quite significant if it could be taken literally. Good part of the summit and a host of meetings and contacts on the side were centred on Europe’s contingencies and how to deal with them. One thing is certain: the euro area leaders attending the meeting (5 in number, plus Spain as guest) were under the spotlight with greater intensity than they anticipated, as revealed indirectly by Manuel Barroso, the Commission President, in a press conference: “we are not here to receive lessons [on] how to handle the economy”.

The Los Cabos meetings were useful also in clarifying further the elements of the European diplomatic puzzle. They can be summarised as follows:

1.       Negotiations are slower than one would hope because each side uses delay tactics to obtain maximum concessions from the others;

2.       The two main players, Germany and France, differ in that the second can accept further EU federalism only if it (first) sees effective crisis resolution instruments in place, while the first is prepared to accept the latter only after having secured the former;

3.       While this conundrum would lend itself to a very natural solution (do both at the same time, and quickly!) it also risks generating dangerous “chicken games”, whose unintended casualty may end up being Europe’s monetary and financial stability.

Recent developments clearly suggest that, at the point we are, the simple announcement of roadmaps however credible would not stabilise markets on a durable basis. Hence the need for a multiple package including both elements mentioned under point 2. Reportedly, discussions started in Mexico, and are likely to continue in Rome (where EU leaders will meet on Friday) and Brussels (at the 28-29 June European Council), on the possibility of using interventions by the EU rescue funds to backstop sovereign yield spreads for countries still on the market but under stress, subject to conditionality. If successful, this hypothetical strategy would reduce the risk of self-fulfilling runs on sovereign debt markets, which in present conditions would inevitably be accompanied by runs on the banks. If concrete, these discussions can become a useful element in a crisis management strategy.

On another issue, a useful deliverable of the summit was the completion of the IMF resources increase, announced in April but yet to be clarified in several respects. As detailed by the IMF, after Los Cabos the commitments sum up to more than 450 US dollars, with several countries adding in their commitment at the summit, notably the 5 BRICS (for a total of 75 mln US$).

Otherwise, the remaining 8.000-some words of the Los Cabos summit final communiqué add little value:

·         The leaders have launched a “Los Cabos Growth and Jobs Action Plan”, whose content, however, is entirely made up of measures already decided or adopted before the meeting.

·         On financial regulation, the decisive stance of the London 2009 declaration is completely gone; in spite of the long sequence of “welcoming” and “encouraging” statements, referred to actions undertaken or planned by regulators and standard setters, the reality is that the process has been entirely delegated by the G20 and no more guidance or stimulus from it is coming. This is worrisome, because, as we see on both sides of the Atlantic, resistance to change is very strong and without political involvement little is likely to be achieved.


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 article More by this author

Blog Post

What 2019 could bring: A look inside the crystal ball

Economic performance prospects in Europe, the US and Asia in 2019. We start off by reviewing commentaries and predictions about the euro zone, which many commentators expect to perform below potential as uncertainties continue to dampen a still robust recovery.

By: Michael Baltensperger Topic: European Macroeconomics & Governance, Global Economics & Governance Date: January 14, 2019
Read about event More on this topic

Upcoming Event

Jan
22
08:00

Rules-based trading system and EU-Australia

At this event the Australian Minister for Trade, Tourism and Investment, Senator the Hon Simon Birmingham will speak about Australia-EU bilateral trade, the FTA negotiations and the importance of multilateral rules-based trading system

Speakers: Senator the Hon Simon Birmingham, André Sapir and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Policy Contribution

The Belt and Road turns five

Five years after its launch, Michael Baltensperger and Uri Dadush reflect on China’s Belt and Road Initiative. The plan to revive ancient trade routes has the potential to enhance development prospects across the world and in China, but that potential might not be realised because the BRI’s objectives are too broad and ill-defined, and its execution is too often non-transparent, lacking in due diligence and uncoordinated.

By: Michael Baltensperger and Uri Dadush Topic: Global Economics & Governance Date: January 10, 2019
Read article More on this topic More by this author

Opinion

Lose-lose scenario for Europe from ongoing China-US negotiations

Without an expectation of a larger market for European exports in the absence of additional opening up by Chinese authorities, European exporters should not enjoy the ongoing China-US negotiations.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 9, 2019
Read article More on this topic More by this author

Blog Post

The microeconomics of Christmas

It’s that time of the year, again. Silvia Merler reviews major contributions to the literature on the controversial topic of the deadweight loss of Christmas.

By: Silvia Merler Topic: Global Economics & Governance Date: December 24, 2018
Read article More by this author

Podcast

Podcast

Director’s cut: Wrapping up 2018

With 2018 drawing to a close, and the dawn of 2019 imminent, Bruegel's scholars reflect on the economic policy developments we can expect in the new year – one that brings with it the additional uncertainty of European elections.

By: The Sound of Economics Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 20, 2018
Read article More on this topic More by this author

Opinion

China’s view of the trade war has changed—and so has its strategy

The truce agreed on by China and the United States at the sidelines of the recent G-20 meeting in Buenos Aires doesn’t really change the picture of the U.S.’s ultimate goal of containing China. The reason is straightforward: The U.S. and China have become strategic competitors and will continue to be so for the foreseeable future, which leaves little room for any long-term settlement of disputes.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 19, 2018
Read article More on this topic More by this author

Opinion

Immigration: The doors of perception

Surveys show that people systematically overestimate the share of foreign-born citizens among resident populations. Aligning people's perceptions with reality is vital to the betterment of public debate and proposed policies.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: December 12, 2018
Read article More by this author

Opinion

The UN climate conference in Katowice: A message from the European capital of coal

Following the COP24 climate talks in Poland, Simone Tagliapietra reviews the arguments for and challenges to decarbonisation.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 12, 2018
Read article More by this author

Blog Post

Economic policy challenges in Southern and Eastern Mediterranean

For a long time, southern and eastern Mediterranean countries struggled with serious socio-economic challenges and dysfunctional economic systems and policies. Marek Dabrowski reviews the challenges the region has to face to get out of a low growth trap.

By: Marek Dabrowski Topic: Global Economics & Governance Date: December 11, 2018
Read article Download PDF More by this author

External Publication

A new strategy for EU-Turkey energy cooperation

Cooperation over energy and climate issues could be one of the components of the EU-Turkey Positive Agenda. Simone Tagliapietra proposes a new strategy for EU-Turkey energy cooperation, which envisions a shift of focus from gas and electricity to fields such as renewables and nuclear energy.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 5, 2018
Read article More on this topic More by this author

Opinion

The great macro divergence

Global growth is expected to continue in 2019 and 2020, albeit at a slower pace. Forecasters are notoriously bad, however, at spotting macroeconomic turning points and the road ahead is hard to read. Potential obstacles abound.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: December 5, 2018
Load more posts