G-20 Differences Half-Hearted Promises and Mutual Blame
The G-20 summit in Toronto ended with yet more vague promises. The rich nations pledged to slash their budget deficits, without making any real commitments. The result is a setback for President Obama, who failed to find support for new stimulus programs in Europe.
At least Chancellor Angela Merkel managed to look happy. The German team had just beaten England 4:1 at the World Cup as a radiant Merkel addressed the press at the summit of the 20 leading developed and emerging economies in Toronto. "This was a great game and a great victory," she said after watching the second half of the game together with British Prime Minister David Cameron. "I am still very moved."
The chancellor, who was wearing a garish reddish-orange blazer, was in a jubilant mood. She wanted to immediately announce another victory -- this time one of her own.
"This is more than I expected," Merkel said, referring to the agreement by the G-20 states that the developed industrial nations would halve their budget deficits by 2013. From 2016 onwards, they will work toward reducing their debt levels. "Countries will then have balanced budgets, so they can look at reducing total debt," Merkel said. The dates happen to correspond exactly to Germany's own timetable for reducing its debts, as anchored in its constitution under the 2009 "debt brake" amendment. "The fact that this (timetable) has been accepted by the industrialized countries is a success," the chancellor commented.
Merkel has said in the past that she doesn't like to think in terms of winners and losers. But speaking in Toronto, the German leader seemed to be feeling ever-so-slightly triumphant. She also appeared to have temporarily forgotten her own maxim that global summits should not set unrealistic objectives.
In reality, the results of the G-20 summit are much less impressive than Merkel would have the press believe. The expectations for the Toronto meeting had been low -- and they were not exceeded.
Another Weak Agreement
At first glance, the promises of the G-20 nations, which were meeting in this format for the fourth time, sounded impressive. National deficits will be "at least" halved by 2013, according to the summit's closing statement. But the agreement has no teeth, given that it does not foresee any binding mechanisms to make sure that the commitment is kept. Every country will manage its own cost-cutting efforts, with some taking action sooner, others later. The measures will be "tailored to national circumstances," the statement reads.
The discussion of possible new rules for the financial sector was postponed to the next summit in South Korea, which is scheduled for November. Merkel was not able to find sufficient allies to push through a worldwide bank levy or a global financial transaction tax. France and Germany are now working on a EU plan for a financial transaction tax.
The G-20 members may have been united during the crisis, but now they are diverging -- both in terms of regulation and their economic health. National interests have once again become more important than the big picture.
Merkel wants to economize. The British have no other choice but to do so. China is allowing its currency to slowly appreciate against the dollar. And the Americans are expected to continue with their strategy of racking up new debt, at least for the time being.
Divided on Economic Growth
Different countries have "differentiated responses," US President Barack Obama said Saturday. It's a formulation that is intended to save face. Obama insisted that countries shared the goal of "long-term sustainable growth" that creates more jobs.
In the run-up to the G-20 summit, the US and Germany had traded salvoes over their differing approaches to tackling the economic crisis. Obama wants more stimulus spending in Europe to ensure that the fragile economic recovery isn't jeopardized, while Merkel is adamant that austerity measures are the correct response to the European debt crisis.
Already on Friday, at the G-8 summit that preceded the G-20 meeting, Obama had made it clear that he did not want open confrontation over growth strategies, according to sources in the German delegation. Then, speaking at the start of the official G-20 dinner on Saturday evening, Obama praised European efforts to reduce their deficits, something that the German side interpreted as a signal of reconciliation.
He left the dirty work to others, such as US Treasury Secretary Timothy Geithner. "Without growth now, deficits will rise further and undermine future growth," Geithner said. History shows the devastating consequences of a premature end to state stimulus spending, he argued, citing the example of the Great Depression.
This line of argument did not, however, make much of an impact in Toronto. Geithner and his boss Obama also seem to be losing support on this issue among US voters.
- Part 1: Half-Hearted Promises and Mutual Blame
- Part 2: The Mutual Blame Game