Universally challenged – G20 focus on global economic solution

In a very outspoken remark, Robert Zoellick, president of the World Bank, said the US would be “mistaken” to assume the greenback would remain the dominant global currency ­ but with neither the euro, yen nor Chinese yuan looking ready to take over such a pivotal role, a more fragmented currency system seems to be in the offing, according to Ben Cohen, economics professor at California University. “Without some form of leadership to assure a minimal degree of compatibility among national policies, global monetary relations will be at constant risk of instability or worse,” he said.

A second, somewhat depressing point that came out of these meetings is that countries vehemently abhor protectionism, but continue to practice it. Both meetings were full of pledges by leaders to resist enacting anti-trade measures: Yet even as they met, research from independent monitoring unit Global Trade Alert found that between the November 2008 G20 summit and the Pittsburgh meeting, 240 measures had been enacted that were either blatantly discriminatory or likely to harm foreign trade.

That said, there is agreement that the end of recession is in sight and that the financial system is no longer in immediate danger of collapse. As Youssef Boutros-Ghali, the Egyptian finance minister who chairs the IMF’s governing committee, said: “All of the components of a recovery are there. We do not want to get carried away, [but] things are looking up. Growth rates are beginning to return to positive territory, systemic risks are coming down, financial sectors are beginning to recover.” The IMF even raised its latest bi-annual growth forecasts for the first time in 18 months and now predicts the world economy will grow 3.1% in 2010: that’s up from expectations of 2.5% just three months ago and its highest since 2007.

The next element of the road to recovery, though, is understanding that there will be no orderly return to normal service and that recovery will not be enjoyed equally across the world. “The recession is not over and it is not automatic that we will recover,” Gordon Brown told the Pittsburgh meeting. “The path to recovery is very fragile.” Indeed, the size of the economy at the end of 2010 will still be below what it was at the end of 2008.

Summer fling
It was also clear from the meetings that the recovery over the summer ­ at least in the West ­ was driven by two factors: the extraordinary package of public spending, cuts in interest rates and the restocking of warehouses by manufacturers and retailers which had run down their inventories as demand vanished. But as Justin Lin, chief economist at the World Bank pointed out, both by their very nature are temporary. “They will disappear but the large excess capacity will still be there,” he said.