The Shanghai G20 finance meeting of 26-27 February concluded with a communiqué intended to project calm
It tried to raise global confidence by claiming “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global
economy,” while signalling the G20 would not be pressured into reacting to short-term market fluctuations. This might be wise: global economic governance
should prioritise long-term stability. However, the communiqué’s reiteration of the oft-repeated phrase “the global recovery continues” did little
to reduce concerns over the world economy.
My piece last week, Prospects and prescriptions for the Shanghai G20 finance meeting
emphasised the importance of G20 action on recent international economic problems as a means to enhance its sustainable growth strategy. I further
asserted that the Shanghai meeting should recognise the limitations of monetary policy for boosting global growth. G20 finance ministers and central
bank governors indeed raised these points, rhetorically prioritising sustainable growth and accepting that “monetary policy alone cannot lead to balanced
growth”. My recommendations were largely reflected in the final communiqué, although with less sense of urgency than I would have liked.
I agree with some G20 experts and commentators, such as John Kirton
and Tristram Sainsbury
, that this was a cautious meeting, which should be judged partly by what happens over the course of the China
G20 presidency. There is some optimism that the Chinese hosts will deliver significant progress on areas of sustainable growth, high-quality investment
and innovative growth strategies, issues they have emphasised
These policy priorities should be welcomed, as they could bring substantial benefits for the global economy. Other important policy issues were addressed
at the Shanghai meeting, including international uncertainty due to market instability, geopolitical tensions, and risks associated with the potential
for a ‘Brexit’ should Britain leave the European Union, plus pledges to sustain the G20’s financial reform agenda and other commitments introduced
during previous presidencies. The meeting also indicated that the forum would support the International Monetary Fund (IMF) in its forthcoming 15th
General Review of Quotas.
There were some advocates of a comprehensive G20 agreement to enhance currency stability, similar to the 1985 Plaza Accord, but this had been rejected prior to the Shanghai meeting
. Such an agreement was not negotiated, although the issue might be
raised in future. The G20’s reluctance to respond more actively to currency, commodity and asset market fluctuations is not without merit, but persistent
global uncertainty and fears could contribute to a financial crisis, especially in one of the emerging and developing economies. Perceived risks of
a significant global shock this year, potentially with damaging contagion effects due to interdependence, are sufficient reason to take further steps
to restore confidence. New substantive commitments from the G20 to cooperate more to achieve sustainable growth might have increased global confidence,
by indicating members’ resolve to do everything necessary to achieve short- and long-term global economic stability.
There was divergence in Shanghai on the prospects for a coordinated G20 fiscal stimulus. The communiqué notes that “our fiscal strategies aim to support
the economy and we will use fiscal policy flexibly to strengthen growth, job creation and confidence, while enhancing resilience and ensuring debt
as a share of GDP is on a sustainable path”. This compromise language reflects the normative policy contestation in the G20 since the global financial
crisis, between advocates of fiscal austerity or fiscal stimulus to achieve growth. I analyse this issue in my forthcoming book, G20 Since the Global Crisis
Significant differences on the matter have restricted G20 cooperation on sustainable growth. Austerity and consequently subdued growth have contributed
to the risks of deflation in the euro area and elsewhere
an issue that should be prioritised by the G20. German Chancellor Angela Merkel and her government are right to emphasise the importance of structural
reforms. Some G20 members should fix the institutional and public policy flaws that constrain their economic potential, including issues of misallocated
resources and bureaucratic inefficiency. However, the G20’s long-term goal of achieving strong, sustainable and balanced growth would be more achievable
if trade-surplus states with strong economic fundamentals were to boost their growth through fiscal or other policy means. The IMF has urged the German
government, especially, to introduce growth-boosting policies to reduce its substantial current account surplus. G20 compliance monitoring
should be enhanced, involving international institutions such as the IMF and the Organisation for Economic
Co-operation and Development, to ensure such policies were reciprocated with structural adjustment in other members. The need to improve G20 commitment
compliance has gained much attention recently, as noted in my book.
Several developing and emerging states are already experiencing negative effects from recent global economic instability, which could trigger financial
crises. A wait-and-see approach to short-term market fluctuations might seem the safest bet to some G20 members; but if inaction leads to financial
crisis even in one country, it could have dangerous contagion effects on others, regionally or globally. More active measures to achieve sustainable
global economic growth, especially from wealthy states that could most afford it, would be timely. One positive outcome from the Shanghai G20 finance
meeting was that the Chinese Presidency, along with others in attendance, engaged constructively on these issues. Next there should be further action
to enhance the sustainable growth potential of G20 economies. It might be right to ignore market fluctuations, but longer-term inaction is less excusable.
Citizens of the world deserve to see an economic recovery finally take hold in 2016.