G-20 Issues Statement on Agreement to Arrive at Agreements and Make Statements
Flushed with victory the G-20, meeting in Pittsburgh, have issued a statement announcing an elaborate new framework for the global economy:
PITTSBURGH—The Group of 20 nations agreed to put in place an elaborate structure to change global economic policy, but without any enforcement mechanism to make countries live up to their word, critics warned it could be toothless.
For the U.S., winning approval of what the G-20 called “A Framework for Strong, Sustainable and Balanced Growth” was a major objective. The U.S. also scored another gain, according to negotiators, convincing Europe to a shift in ownership of the International Monetary Fund in favor of developing countries. A deal on restraining executive compensation and boosting the capital that banks need to hold is also in the offing.
On energy issues, though, the White House, which sought an agreement to eliminate fossil fuel subsidies, faltered. While the communiqué embraced an effort to eliminate subsidies, it won’t have a deadline for action. The U.S. also didn’t get approval for a specific vehicle to finance climate change mitigation in developing countries.
The G-20 plan to boost growth comes at a time when U.S. consumers, who have been the main engine of economic growth, are anticipated to save more and spend less, reducing global demand. Among the policy changes envisioned: China and Japan would rely less on exports and more on domestic consumption; the U.S. would slash its budget deficit; and Europe make tough structural reforms to prod business investment.
“We commit to develop a process whereby we set out our objectives, put forward policies to achieve these objectives and together assess our progress,” with the analytic help of the IMF and World Bank, according to a draft communiqué. Work on the Framework is due to begin in November
While it may well be true, as pointed out by Secretary-General of the Organization for Economic Cooperation and Development Angel Gurria, that processes without sanctions are easier to join, it’s also significantly harder to get them beyond the issuing statements point to producing concrete results. Unless the United States slashes spending or raises taxes, how likely will China or Germany be to re-balance their own trade?
My reaction was echoed by economist Peter Morici:
“Without sanctions, this agreement doesn’t mean anything,” said University of Maryland economist Peter Morici. “The countries will just discuss changes and make statements.”