Two weeks ago, I had lamented the failure of Group of 20 (G20) to look beyond the ongoing economic crisis. I had recommended that this informal institution should either be “resuscitated with urgency”, or wound up.
The failure of the Seoul Summit today, brings forth a new dimension to my laments. The G20 has lost its zero. The global economic agenda is being set not by the G20 but by G2 — the US and China. There are other rifts too — emerging versus developed countries, trade surplus versus deficit economies. Despite South Korean President Lee Myung-bak’s best efforts to deepen as well as broaden the global finance agenda — and to be fair, there are some good but action-free ideas in the final communiqué — the G20 has become irrelevant.
The shortest-term signal of G20’s demise came from the stock markets, all of which, without exception, fell together. But the reason being ascribed is not just the G20 failure to address issue such as regulatory reform or end currency wars. “The success or failure of G20 is just random noise in the market where real money is exchanged every second,” an analyst-trader said. “The real reason is China’s signal that it wants to cool its overheated economy.”
More interesting than the G20’s 1,537-word, 20-clauses-strong communiqué, was US President Barack Obama’s press conference, where he said China spends “enormous amounts of money intervening in the market to keep it (its currency the yuan) undervalued.” This, he said, hurts not only the US, but China’s other trading partners like India. All that the G20 handed him was a goodwill statement on refraining from “competitive devaluation of currencies”.
Over the long term, all other countries are bystanders, whose leaders will watch the actions of China as it raises interest rates and the US as it releases $600 billion into global markets, which will devalue the dollar.
So, what have we got from the Seoul Summit? A moral but meaningless MoU. And as the venue for the next summit moves to Paris, we put our hopes of greater and stronger action on France’s President Nicholas Sarkozy.