Rifts exposed ahead of G20 summit

WITH JUST two days to go before the start of a G20 leaders’ summit, Ireland’s worsening debt troubles are serving as a reminder that the global economy remains vulnerable to financial turmoil.

The Group of 20 rich and emerging economies meet in Seoul tomorrow and on Friday and are eager to show they have not lost the co-operative spirit forged during the depths of the financial crisis in 2008.

But growing discontent over foreign exchange rates and trade have exposed deep international rifts within the global economic community.

Financial markets are hung up on Europe’s continuing debt problems and Ireland’s ability to get its public finances in shape. This is forming a backdrop to the G20 meeting.

The markets fear that Dublin may fail to pass another raft of austerity measures on December 7th, and that as a result it will have to seek a bailout from its partners in the euro zone and the International Monetary Fund, as Greece had to earlier this year.

Against this gloomy background, the G20’s chief task will be to reduce the imbalances destabilising the world economy, as countries clamour for protectionism and trade barriers.

G20 nations account for 85 per cent of the global economy and this is its fifth meeting since leaders gathered in late 2008 to map out a global response to the meltdown at the time.

China has warned that US easy money could inflate asset bubbles elsewhere, keeping up the pressure on Washington. The Fed’s new $600 billion (€435 billion) bond-buying programme has drawn global scorn because of concerns it will send a flood of cash into the world economy without doing much to reinvigorate a lacklustre American recovery.

“The US QE2 may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles, all of which require our vigilance,” Ma Delun, deputy governor of the People’s Bank of China, told the International Finance Forum in Beijing.

China will play a vital role in the G20 talks, as it remains the main engine of global growth one year after its fiscal stimulus plan began to prop up economic expansion.

This was underlined by data from the World Trade Organisation which showed that in the first nine months of 2010, China opened up a massive exports lead on Germany, which until last year was still exporting more merchandise than the Asian giant.

In the January-September period, China exported goods worth €813 billion, an increase of 34 per cent on the previous year, according to calculations by the WTO. By contrast, German sales rose by 14.2 per cent to €660 billion, the data showed.

With this data in mind, one of the priorities will be to set measurable targets for reducing trade and current account gaps. The biggest concern is the huge imbalance between the United States, which buys far more than it sells to the rest of the world, and developing countries, such as China, which are running big trade surpluses.

US treasury secretary Timothy Geithner insisted there was broad agreement among G20 members – including China – on narrowing global imbalances between cash-rich exporters and debt-laden consumer countries.

“I’m very confident that you’re going to see very strong consensus on this basic framework because it meets the basic tests and it’s better than the alternatives,” he said. “The Chinese are very supportive of it. It has a lot of benefits to them.”