Geneva (D. Ravi Kanth) – The leaders of the Group of 20 developed and developing countries on Saturday (8 July) delivered a blueprint for “Building Resilience” in the world, but without addressing the grave “imbalances” between capital surplus and deficit nations, as well as “inequality” in access to food and affordable medicines.The “G20 Leaders’ Declaration” for “sharing an interconnected world” unveiled in Hamburg on 8 July covers several issues under the title “Building Resilience”.
The issues include “resilient global financial system”; “international financial architecture”; “international tax cooperation and financial transparency”; “safeguarding against health crises and strengthening health systems”; and “combating antimicrobial resistance (AMR)”.
Under another heading “improving sustainable livelihoods”, the G20 leaders addressed issues such as “energy and climate,” “leading the way towards sustainable development,” “women’s empowerment,” “towards food security, water sustainability, and rural youth employment,” and “resource efficiency and marine litter”.
Emphasizing the importance of “an open and resilient financial system, grounded in international standards,” the G20 leaders spoke about finalizing the Basel III framework without significantly increasing overall capital requirements across the banking sector.
[The June meeting of the Basel Committee on Banking Supervision (BCBS) ended without consensus on finalizing the Basel-III framework. SUNS]
The Basel III framework aims at a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.
The declaration also mentioned about the progress made in transforming “shadow banking into resilient market based finance since the financial crisis.”
The leaders also called for completing the 15th General Review of IMF Quotas, including a new quota formula by the annual meetings of 2019.
The 20 countries also agreed on continuing further work on “a globally fair and modern international tax system” and cooperating on “pro-growth tax policies”.
It mentioned about a “satisfactory level of implementation of the agreed international standards on tax transparency” for tackling tax evasion and illegal bank accounts.
“As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering we will advance the effective implementation of international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and cross-border context,” the Hamburg declaration boldly announced.
Surprisingly, there is no mention of the global tensions arising out of the bulging surpluses of capital by a few countries while the rest of the world, including the most dominant economy of the United States, are locked up in continued deficits.
The US President Donald Trump apparently complained about the issue of trade surpluses and deficits, pointing out that his country maintains huge trade deficits with most of the countries sitting at the table.
Asked whether the issue of imbalances between capital-surplus countries such as Germany, China, and Japan among others on the one side and deficit countries such as the US, India, Brazil, Argentina, and South Africa on the other was discussed, India’s Sherpa Arvind Panagariya told SUNS that while the issue was discussed, there was no specific outcome.
Ironically, on the day when the G20 leaders’ meeting concluded, The Economist magazine on July 8 said that “Germany’s current account surplus [of US$300 billion] is bad for the global economy.”
It said while the German chancellor Angela Merkel “is absolutely right to proclaim the message of free trade, she and her compatriots need to understand that Germany’s surpluses are themselves a threat to free trade’s legitimacy.”
The recurring tensions between the surplus countries and the deficit nations is not a new issue.
The head of the International Monetary Fund (IMF), Ms. Christine Lagarde, said that criticism of Germany’s trade surplus is valid, according to a news story in The Guardian on 17 April.
“When there are excessive imbalances, when there is excessive inequality, or instability in the financial system, all those three are bad for stability, for the sustainability of growth… We do not shy away from saying that,” she said candidly.
Lagarde also called for debt relief for Greece suggesting that “if the Greek debt is not sustainable in accordance with the IMF’s rules and on the basis of reasonable parameters, we will not participate in the program.”
In his book “And The Weak Suffer What They Must?: Europe, Austerity, and the Threat to Global Stability”, former Greek finance minister Yanis Varoufakis has argued succinctly as to how the recurring tensions between the surplus countries and the deficit nations – “one nation’s deficit is another’s surplus” – remain unaddressed despite the 2008 financial crisis.
Keynes’s blueprint of a surplus recycling mechanism that was required by the Bretton Woods system “would be to maintain monetary stability everywhere, to keep both surpluses and deficits in check throughout the Western world, and at the first sign of crisis in a troubled nation, speedily recycle surpluses into it so as to prevent the crisis spreading.”
But it was shot down by the then world’s sole surplus country, the US, which went into deficits in the 1960s.
The Nixon Shock of 1971 paved the way for creating a dollarized global economy in which the US always retained an “exorbitant privilege.”
Simultaneously, Wall Street became the Global Minotaur, according to Varoufakis, for sucking the surpluses from China and Germany while servicing a debt-fuelled economy.
Varoufakis said Germany’s controversial role in the European coal and steel cartel that subsequently led to the creation of the European Union and the European Monetary System, which finally led to the single currency the euro, have all along been challenged by successive French leaders starting with Charles de Gaulle.
Germany’s export-based industry thrived because of the flawed European monetary system and “the export of German goods and German profits to the rest of the eurozone created debt-fuelled” annual growth in Greece and Ireland till the 2008 crisis wrecked the world economy, the former Greece finance minister had argued.
Despite such a problem persisting for more than 70 years and having aggravated the financial crises, the G20 leaders under the presidency of Germany simply chose to turn a blind eye.
In a way, the failure to create a surplus-recycling mechanism has led to the creation of Donald Trump’s outright protectionist measures such as the latest bout of restrictions.
President Donald Trump finally unveiled the “Buy American/Hire American” executive order on 18 April ostensibly for cracking down on abuses in the H-1B visa program for skilled workers and for the federal government to strengthen its various “Buy American” provisions that give preference to domestically produced products and also for a 220-day study of US trade agreements that effectively give foreign companies the right to be treated as domestic companies under the so-called WTO plurilateral Agreement on Government Procurement.
Immediately, Australia and New Zealand joined the chorus for imposing restrictions on foreign skilled workers while declaring that they would only hire their nationals.
In short, the continuation of “austerity economics” by the Hamburg declaration without addressing the grave imbalances in the global economy are a cause for concern.
If anything, the declaration will only perpetuate the problems of imbalance and inequality in the global economy. – Third World Network
