Global Growth to Dominate G20 Summit
   2012-06-14 17:12:43      Web Editor: yangyang66

By Stuart Wiggin

On June 18-19 the Group of 20 (G20) nations will meet in Los Cabos, Mexico, to discuss and tackle some of the world's most pressing economic issues. The summit will provide an arena for discussion focusing upon possibilities for global growth, with the eurozone likely to come under intense scrutiny. Meanwhile, G20 nations will also hope to combat rising protectionism at a time when developing and developed nations are looking to boost domestic growth. China's usual stance, calling for more representation for developing nations not included within the G20, is likely to continue though its government has also acknowledged that there are more pressing matters at hand, namely, rebalancing the global economy.

EU nations are hoping that the G20 summit will also pay equal attention to the importance of the U.S. and Japanese economies in terms of addressing the world's economic malaise, as well as pushing for more currency flexibility from China. Michael Froman, deputy national security adviser for international economic affairs within the U.S. government, also acknowledged that the eurozone cannot and must not be the only issue at this year's summit. "The eurozone crisis is the most significant threat to growth," said Froman during a panel discussion at the Center for Strategic and International Studies in Washington, "but we see slowing growth in the developing economies."

China will be keen on addressing the eurozone crisis however, as they are a major holder of European debt. As domestic demand in China has stalled and as Europe's economic problems serve to suppress business activity, the Chinese economy posted a falling growth figure of 8.1 percent for the first quarter of this year; compared to 9.7 percent a year earlier. Desperate to meet the 7.5 percent growth target for 2012, Chinese officials perceive the eurozone's problem as a real threat to continued growth. The Chinese government was pleased therefore when the eurozone decided to lend Spain up to 100 billion euros following crisis talks over Spanish banks this past week. Liu Weimin, China's foreign ministry spokesman commented upon the eurozone's recent moves to shore up Spain's banks, stating, "Since the debt crisis, the European side has taken many measures, including enhancing fiscal discipline and restoring economic growth". He added, "It is fair to say that relevant measures have been effective."

European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy recently sent a letter to the heads of all 27 EU nations stating that Europe was taking its role seriously in securing the financial stability of the euro area in the run-up to the G20 summit. The letter also stated, "Whilst we are firmly focused on playing our part at Los Cabos, all other G20 partners should also recognize their responsibilities in building a sustainable recovery". Barroso and Rompuy went on to state in the letter, "We should also call on China to continue strengthening its social safety nets, carry out further structural reforms and move to a market-determined exchange rate."

Following continued criticism from the U.S., the largest stakeholder within the IMF, that the eurozone nations were not doing enough to promote growth and address the crisis, Barroso and Rompuy stated that internal balances within the eurozone were actually being reduced according to the most recent economic data. However, the letter also stated that more efforts were still required; hence the call on the U.S., Japan and China to help reestablish the global economy. The EU is China's biggest trading partner, and the call for countries with trade surpluses to lend a hand was clearly aimed at China, the EU's 2nd biggest trading partner behind the U.S. Eurozone countries are also likely to dismiss any talk of Greece exiting the single currency.

A large part of the summit will be devoted to strengthening the financial architecture of the International Monetary Fund (IMF) in order to safeguard against future economic shocks. Zhu Jun, deputy director of the International Department of the People's Bank of China, has called for the G20 nations to push forward with IMF reforms as agreed at the 2010 G20 Summit in Seoul. This view has also been echoed by Barroso and Rompuy who believe that IMF quota rules should be reviewed in order to improve accountability and effectiveness. The reforms agreed upon in 2010 include completing the 6 percent shifts of quota shares - financial stakes that determine voting power within the IMF - to emerging economies. The Chinese government has stated that it will continue boosting IMF resources in accordance with the plan established in 2010 in the context of IMF sources stating that the world faces a 1 trillion dollar financing gap over the next two years if the current economic slide is not halted. At present, the IMF has a lending capacity of 380 billion dollars.

The scale of the problems facing the G20 nations is huge. Reinforcing the IMF's resources will calm international markets but the greater lending capacity will provide more safety to smaller countries rather than providing a safety net to the eurozone. Initially, the target by which to increase the IMF lending capacity stood at 600 billion dollars, though this has now been scaled back to around 400 billion dollars; a sign that countries outside the eurozone, specifically the U.S., are unwilling to "bail out" Europe when they perceive European countries to be not doing enough to solve their own problems. With that being said, on the 18 and 19 of June, the G20 nations will need to be more concerted than ever before in order to get the global economy back on its feet.

These views do not reflect the views of CRI.


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