The G20 finance ministers’ meeting in Sydney last month provided a convivial winter break for the global economic elite. Travellers from the northern hemisphere could enjoy the southern summer. Everybody could escape domestic political traumas, spending a few days among their peers in luxury paid for by taxpayers. They could bask in the slavish adulation of the local popular press, who were in awe of the central banking “rock stars” and the charms of International Monetary Fund’s president, Christine Lagarde.
The G20 has a poor record in meeting targets. The 50 per cent reduction in government debt by 2013 has not happened. Action to minimise tax avoidance, another objective of the Sydney Meeting, has been subverted by individual countries using differential tax rates and other policies to encourage businesses to relocate or remain in particular jurisdictions. Objectives such as reducing the dominance of banks deemed too big to fail and shrinking the shadow banking system have not been met. Any decline in the size of the shadow banks was a direct result of the financial crisis; there has been little change in scale since.
A key reason for failure is the lack of co-ordination resulting from the primacy of individual national interests. After the Sydney meeting, it did not take long for the feigned unanimity to disappear.
The European Central Banks and the German Finance Minister were sceptical about the growth targets, pointing out that no new measures had yet been adopted to make these easier to attain. Jens Weidmann, the head of the Bundesbank, damned the agreement with faint praise, stating that quantitative growth targets, while “fundamentally positive”, were “problematic”.
The Indian Finance Minister, Palaniappan Chidambaram, said he did not consider the growth targets binding. The South African Finance Minister flew home to announce a reduction in the nation’s forecast growth. Growth numbers from Brazil, and even from the US, released shortly after the meeting were disappointing.
Zhou Xiaochuan, governor of the People’s Bank of China, emphasised the need of his country to balance economic growth, reforms and stability and refused to commit to measures to increase growth. Shortly afterwards, the Chinese authorities moved to reduce the value of the yuan against foreign currencies to restrict capital inflows and increase China’s competitiveness.
Divisions became apparent even on previously agreed principles. The US Treasury Secretary, Jack Lew, argued for more co-ordination on regulation of financial markets and banks. Before the meeting the host, Australia’s Treasurer, Joe Hockey, stated that all those regulations should be “evaporated” on the grounds that they were impeding efficient resource allocation. He was particularly opposed to European plans for a financial transactions tax. Mr Hockey argued that transparency was all that was needed.
The reality is that, to the extent that individual nations’ policies serve domestic interests of growth, the G20 measures may be implemented, with potential spill-over benefits for the global economy. But important, often-repeated steps, such as increasing domestic demand in exporting nations such as Germany and China, are unlikely to be taken if they are seen as detrimental to national interest – even if they would benefit the global economy.
In effect, the G20 consistently fails the real measure of co-ordinated global policy identified by Mario Draghi, president of the European Central Bank, which is that countries should pursue policies that would not be adopted if they were acting solely in their own domestic interests.
The G20 commitments are largely meaningless. Few, if any, initiatives are likely to be implemented. Based on its previous performance, few targets will be met. This poses a fundamental question about the point of such forums.
As several commentators observed, the real point was to illustrate the indispensability of the global financial and political elite and to reassure citizens that they were in control of the situation.
The propositions are inconsistent with the fact that it is the same individuals, or their ilk, that created the conditions for the crisis in the first place. They are also inconsistent with the fact that after nearly six years of meetings, communiqués and targets, the global economy is no closer to a sustainable recovery.
The most honest course of action would be recognise that the policy options are limited, the level of understanding and degree of control over the economy compromised, and the idea of global co‑ordination a utopian dream.
The bad news is that the heads of the G20 are scheduled to meet in Brisbane in 2014 for a new round.
Satyajit Das is a former banker and author of ‘Extreme Money’ and ‘Traders, Guns & Money’