G20 Summit leaves trail of division and debate

When I was reading the previews of the G20 summit in Toronto last week the consensus feeling was that caution and prudence would be the overriding message to come from the meetings. The blend of concerns remain as broad as they are difficult. The extremely volatile economic situation in Europe caused by the near total collapse of the Greek economy has been followed by similar concerns about the stability of Spain, where unemployment shows little sign of slowing, currently at 20% some analysts foresee it peaking at 22% later this year. Stock markets have found more solid footing in recent weeks after a difficult May and exchange markets have made rapid climbs and drops on a weekly basis. All of this without even mentioning a stuttering US recovery and the environmental alarm bells rightly ringing due to the continuing BP disaster in the Gulf of Mexico.

All of this looked somewhat manageable compared with the splintering now evident within the G20 nations after the meetings. Better still that you avert your eyes from the chaotic weekend of protests, violence and police response in Toronto throughout the weekend.

It is perhaps too early to take full stock of these G20 discussions but initial impressions confirm that the united front shown to tackle the global economic collapse of 2008 may have been the most harmonious reaction the G20 can currently muster. As we return to something approaching a recovery the friction between nations and specific needs threatens to escalate into a wrestling match over what should be done next to secure economic stability. Reading between the lines after reading the statements this weekend the overall message seems to be – “I’ll do it my own way” to the power of 20.  The US cannot find common ground with Europe about the lengths needed for fiscal responsibility; public spending cuts of 15,25,35% are being rolled out by EU nations while America insists this will strangle any recovery. Leading European nations argue that a near total collapse of currencies poses a greater long term threat than the danger of a return to recession. The disagreements ran seemingly everywhere; Canada, Australia, China, India and Japan were against the proposal that their banks – which proved to be the most stable during recent times  – should have to pay the levy backed by the US, UK, Germany and France. Then we have the biggest trade partners in the world China and the US playing a long standing game of poker with currency appreciation of the Yuan to appreciate to a point where the trade surplus with the US may actually fall.  It was very much a case of ‘not our fault’ and the age old battle of prudence versus hope.

It is probably the wrong time to assess whether the G20 is meeting its primary function of creating a global economic template that has long term objectives balanced with the ability to improve specific inconsistencies as needed. Instead the summits have turned into the equivalent of international crisis management where each nation lays claim to having the most precarious circumstances. It was of course never meant to be this way. While the stimulus funds primed the system in 2008 and 2009 its being debated that the net result was only stability and not the growth it was hoped to stimulate. It is probably still premature to make that final observation. What is certain is that varying degrees of growth are occurring and seem set to continue this year which then can lead to inflation for some economies. Whether that should trigger the systematic increases in interest rates is the question, the UK is the same way.primed to raise theirs although its questionable if the US will join Canada in making raises that Canada has already commenced.

Measures to monitor and control deflation were also under discussion. Many nations have no experience in managing such a scenario and the prospect of central banks that continue to struggle losing value in their assets could begin another slump. I’ll further research this G20 summit but the lack of cohesion exhibited this week suggests the next summit can’t happen soon enough. The notion that fiscal control and responsibility will now be a primary commitment is something that should have happened a decade ago – whether a recipe that satisfies everyone can be reached remains to be seen.