An attempt by the British Government to put pressure on global leaders to take decisive action to avert international recession has drawn attention to divisions within developing nations about tackling the looming crisis.
The UK, along with five other countries, has written an open letter to France, which holds the G20 presidency, calling for co-ordinated international action to stimulate economic growth to be taken at November's G20 meeting in Cannes. The letter, which was initiated by the Government, was signed by David Cameron, along with the leaders of the governments of Australia, Canada, Indonesia, Mexico and South Korea. Among the nations that did not sign the missive were the United States, Germany and China.
The letter, which was addressed to the French President, Nicolas Sarkozy, warned: "We have not yet mastered the challenges of the crisis. Global imbalances are rising again. External risks to the stability of our banks and our economies are reaching pre-crisis levels." It went on to argue that: " The G20, representing 85 per cent of the world economy, is our platform to address these challenges. Under your leadership in Cannes, we have the opportunity to commit to each other to take the actions we know are necessary."
The letter calls for nations with trade surpluses to increase their domestic demand in order to facilitate a global macroeconomic rebalancing. It said: "Surplus countries need to increase their expansion of domestic demand, enshrining their policies in clear political commitments within the G20 including on structural reform, to keep markets open, increase exchange rate flexibility and refrain from competitive devaluation."
Germany has repeatedly resisted calls from other nations for it to reduce its trade surplus, arguing that the burden of adjustment should fall on nations that run a trade deficit. These nations, argues Berlin, should cut borrowing and increase competitiveness. China has also been resistant to calls for it to cease holding down the value of its currency, a policy that boosts its export sector.
The letter welcomes President Obama's proposal of a $450bn (£293bn) jobs bill, but stresses that America "needs to overcome the remaining hurdles towards restoring medium-term fiscal sustainability".
The White House has argued that the prime threat to the global economy comes from the eurozone debt crisis, rather than fears about the US budget deficit.Reuse content