G20 talks focus on policy clarity, China offers olive branch
Draft communique will urge China to encourage domestic demand-driven growth
Germany’s finance minister Wolfgang Schauble, Britain’s chancellor of the exchequer George Osborne, Russia’s finance minister Anton Siluanov, Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), and France’s finance minister Pierre Moscovici attend a news conference as part of the G20 finance ministers and central bank governors’ meeting in Moscow. Photograph: Grigory Dukor/Reuters
The world’s economic crisis response team grappled today with the prospect of more market volatility resulting from the United States, China and Japan charting a course towards recovery.
Finance ministers and central bankers from the Group of 20 nations, gathered in Moscow, were to call for greater clarity in policy ‘messaging’ after signals of a withdrawal of US monetary stimulus caused a global sell-off in stocks and bonds, and a flight to the dollar.
G20 sources said a draft communique in the works would also urge China to encourage domestic demand-driven growth and allow greater exchange-rate flexibility as part of wider efforts to rebalance the global economy.
Beijing offered an early olive branch, announcing long-awaited interest rate reforms removing a floor on the rates banks may charge clients for loans, which in turn should reduce the cost of borrowing for companies and households.
“Global imbalances have narrowed with the crisis, but we need to continue with decisive policy action to make sure that they do not increase again when growth picks up,” EU economic and monetary affairs commissioner Olli Rehn said.
The G20 also backed a fundamental tax rethink that takes aim at the loopholes used by multinational firms and responds to widespread anger among voters hit with higher tax bills to cover soaring national debts.
The forum took the lead in the 2008-09 financial crisis and now faces a multi-speed global economy in which only the United States appears to be nearing a self-sustaining recovery.
China, for years the engine of global growth, is suffering a slowdown amid doubts over the stability of its financial system, Japan has only recently embarked on a radical fiscal and monetary stimulus experiment, and Europe’s economy is more stop than go.
Chairman Ben Bernanke’s announcement that the Fed may start to wind down its $85 billion in monthly bond purchases sparked a panicky sell-off, particularly in emerging markets.
“There has been a kind of over-reaction of the markets,” French Finance Minister Pierre Moscovici said. “So we are looking for the balance.”
Investors were calmed by testimony to Congress this week by Bernanke, who is not coming to Moscow, though he said the exit plan from money-printing remained on the cards.
Clearer policy communication is “crucial for preventing serious volatility on financial markets”, said Russian finance minister Anton Siluanov.
Negotiators working on a joint communique reconvened after a drafting session last night that sources said was less fraught than at the February G20 meeting in Moscow, when there was talk of a currency devaluation war.