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Global Structural Macroeconomic Imbalances do Matter
By Kaufmann | April 1, 2009 1 Comment »
A day ago the pre-Summit row was merely transatlantic, pitting the U.S. against the Franco-German team on the wisdom of expansionary fiscal policy at present. Japan has now joined the US camp. The problem is that in the intertwined and imbalanced global macro-economy of today, it is not just a question of getting a critical mass of a few large countries on an expansionary fiscal path…
As Martin Wolf correctly points out in his weekly FT column, a major structural shift to correct the massive global imbalances which contributed to this crisis is needed. In such a shift the financial surplus countries (high national savers like Germany, China and Japan) need to quickly move closer to balance through larger increases in fiscal deficits than in the large financial deficit countries (U.S. and UK). Such substantial structural realignment is unlikely to happen now, and unsustainable prospects for the medium term would result if the lion share of the move towards further financial deficit balances take place in the US and the UK rather than in the historically surplus countries. In Martin’s title words. the ’G20 leaders wil fail to deal with the big challenge’.
When the G20 Summit concludes there are likely to be some specific commitments, such as on helping poor countries and additional resources for the IMF and Multilateral Development Banks; guarding against rising protectionism; dealing with tax havens, and possibly on regulating hedge funds and bankers’ compensation. But arguably a critical macro-economic issue may be left unresolved in substance, one which may negatively affect other objectives as well, however indirectly (such as growth prospects of poorer countries and even financial and trade protectionism).
And as previously discussed, the challenge of addressing the problem of financial sector elite capture and legal corruption is not likely to be explicitly brought up at the Summit. I would be the first to concede that in the very short term this problem is not as urgently critical as addressing the global structural macro-economic imbalances issue, but soon attention will be needed to these political governance issues. To rebuild a credible and resilient financial sector will take more than decreeing by fiat the compensation of bankers or a few other technical regulatory fixes by fiat…
Topics: Corruption, G-20, capture, financial crisis | | 1 Comment
April 2nd, 2009 at 3:14 am
Mr. Kaufmann: Please do not dismiss the problem of elite capture and corruption in the developing world even temporarily. They are demanding additional resources without any “condition” meaning accountability. I am sure you know the leakages. Infact, in times of resource scarcity, more vigilance is needed and can’t be put on hold.