AS THE G20 leaders gather in Cannes today the shadow of global recession hangs over them for the second time in three years. Both the IMF and OECD have revised down their 2012 growth forecasts, while the International Labour Organisation has been warning of social unrest as unemployment rises remorselessly.
This time, the potential recession’s immediate cause is the euro zone crisis, but experience suggests that the never-more-necessary international economic co-ordination that is the G20’s raison d’etre will prove as elusive as ever. Well-meaning lowest-common-denominator platitudes are likely again to be the summit’s “product” – central banks may be urged to keep interest rates low and to support activity through “unconventional measures” such as quantitative easing.
The forlorn hope is that the big surplus countries such as China, Germany, Japan and oil exporters Russia and Saudi Arabia will come to the aid of global demand by promising to expand their domestic economies. And that many of them will also invest in the European Financial Stability Facility (EFSF). In truth, however, even if willing, emerging economies, including India and China, only represent 30 per cent of global consumption and so can only have a limited effect on demand.
Meanwhile the Republican-dominated US Congress is blocking President Barack Obama’s proposed fiscal stimulus. Expansion is barely the order of the day in the US, and neither will Keynesian measures to create badly needed jobs have many advocates in Cannes.
Currency co-ordination is also likely to be as elusive as ever, with Beijing unwilling to take lectures on its undervalued currency from a US incapable of dealing with its own current account deficit or debt, or a Europe with its hand out for Chinese cash. Japan has resumed its own intervention against the appreciation of the yen. Brazil and Switzerland are also in protectionist mode. What chance then a common position at the G20?
What will dominate discussions, of course, is the euro zone’s crisis and the expectation that Europe’s leaders will explain what they are doing about it. There has been a lot of recent noise from the US and China urging the EU to get its act together with some comfort coming from last week’s decisions to expand the EFSF, recapitalise banks and ringfence Greece’s debt default. The uncertainty created by Greece’s referendum has undone much of that good work, to the fury of other EU leaders.
Also on the agenda, a bit of an also-ran that used to dominate such meetings, is development. And specifically a report commissioned from Microsoft’s Bill Gates exploring “innovative” means of raising money, including taxes on tobacco and a financial transaction tax, a “Tobin tax”. Strongly backed by France, South Africa, and Germany, the Tobin tax has been endorsed by other attendees such as the European Commission, and Argentina. But strong opposition from the US and Britain will unfortunately also ensure that no consensus emerges on the issue. President Nicolas Sarkozy has promised to push ahead with a “coalition of the willing”, but there’s many a slip between cup and lip.