So they've gone and done it. Even though the G-20 called the recovery "uneven and fragile" in the final declaration from its weekend confab in Toronto, the advanced economies also pledged to at least halve fiscal deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. The statement read:
Recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation.
So how will the G-20's position impact the rebound? Though there is no clear consensus among economists on whether or not fiscal retrenchment will sap the recovery, I think the way the G-20 is going about the process can only be negative. Here's why:
The problem is that the G-20 countries aren't fulfilling other aspects of their program that would act as a counterweight to the promised fiscal adjustment and ensure the global recovery keeps humming along. For example, the declaration warned that budget cutting has to be closely matched to a rebound in the private sector and coordinated across countries:
The path of adjustment must be carefully calibrated to sustain the recovery in private demand. There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery.
But isn't that exactly what the G-20 is calling for, a "synchronized" retrenchment across the developed world? By putting in place a promise that all industrialized nations dramatically cut their deficits, the G-20 has set in motion the very rush to the exits that it says is a danger. I agree with the American position on the matter, that more or less got snuffed out at the summit, that countries that don't suffer from severe sovereign debt issues or large fiscal deficits (whether in the emerging world, like China, or the developed, like Germany) should delay or slow their fiscal adjustment in order to sustain the global recovery and help those other nations that can't wait to cut their budgets (Greece, Portugal). But that's not happening. Germany is leading the charge on fiscal austerity instead of coming to the aid of its neighbors and stimulating Europe's economies.
The other promise made at the G-20 to keep growth going is also likely to get ignored. That's the one about rebalancing the global economy. The declaration read that fiscal adjustment "should be combined with efforts to rebalance global demand to help ensure global growth continues on a sustainable path." Some members of the G-20 with large current account surpluses are at least making an effort (like China) or recognizing the need for change (like Japan). But others "“ and I'm thinking Germany here "“ seem to simply revel in their surpluses. The process of rebalancing is not happening quickly enough to counteract the drag on the global economy from fiscal cutbacks.
So in the end, the G-20 only set targets for the one factor that can hurt the recovery "“ fiscal adjustment "“ while not properly coordinating those efforts or holding its members to clear guidelines on the rebalancing that could support growth. That sounds like a recipe for a slower rebound from the Great Recession.
Michael, I'm more skeptical about the G-20-ish sticking to the script and am betting everyone will soon deviate as needed to save their own skins "¦including us. We need more jobs now and once more tax revenue rolls in from more jobs / higher incomes then deficit reduction can be tackled easier. . Or better yet, you can wait for the usual reader comments that go along the lines of either: (A.) "If sovereign countries simply took control of their money supplies then they can just print all the money they need to pay off all debts and satisfy all their citizens' needs to make the world a happier, brighter place." or (B.) "The global economy is one giant Ponzi scheme and now we're paying the price for it." . BTW, didn't Germany actually do (A) almost verbatim during the early 20th c. and got hammered with hyperinflation? But I digress. re: Germany, do you see them leaving the Euro? I'm leaning towards them doing it. Thanks for your thoughts.
There are two kinds of people who should not comment on this post: . 1. Those who do not understand the differences between nations that are monetarily sovereign and nations that are not. . 2. Those who do not understand what happened to Germany following WWI.
Rodger Malcolm Mitchell
Hmm, looks like this forum is at risk of devolving into another Swampland.
Ffred, it already has, just not as busy.
I am not ignorant of European history in the 20th century [the US could also have ended up with a totalitarian government in the 1930s if the New Deal had not blunted the effects of the Great Depression].
I am also aware that history did not end with WW I.
I am neither an isolationist nor a Know Nothing, but if we are ALL going to put national interests first [Smoot Hawley anyone?] the Germans better be ready for defending themselves and for the economic impact of losing US military bases in Germany.
If we can not afford grandma's Social Security or national health care [the Germans can cover everyone, why not us?] we will have a choice of cutting the largest defense budget in the world or the remnants of that New Deal.
I'm a former DoD contractor and know that game well, but if the American people are ever given a clear choice between endless wars or financial security I think guns will lose to butter!
I, believe that we need Lord Maynard Keynes solution. Post second World War Britain's economic crisis were saved by his policies to gather with capitalism.
Germany exports 60% of its products to Euro zone countries and the rest to others. German economy is manufactured led and export oriented. So to an individual like me it is difficult to understand their economic philosophy. Britain's new right wing government is also butchering the economic progress. They want to cut welfare, great but where are the jobs coming from. There are no jobs for skilled workers and unskilled workers.
The economic tsunami brought by the financial institutions are still at large, except in Germany and France.
G8 and G20 are just a talking shop. What is good for goose is not always good for gender.
Just hope for the best.
The original post asks, "Has the G-20 doomed the recovery?" The answer is "Yes." . Reducing deficit spending (i.e. money growth) is like applying leeches to cure anemia.
Rodger Malcolm Mitchell
Get e-mail updates from TIME's The Curious Capitalist in your inbox and never miss a day.
The Curious Capitalist Favorite Links Barry Ritholtz Brad DeLong Calculated Risk Econbrowser Econlog Epicurean Dealmaker Ezra Klein Felix Salmon Floyd Norris Greg Mankiw Growthology James Pethokoukis John Gapper Justin Fox Marginal Revolution Mark Thoma Matt McAlister Megan McArdle Mike Moffatt Nicholas Carr Paul Kedrosky Paul Krugman Philip Coggan Planet Money Roger Parloff Ryan Avent The Stash adFactory.getCmAd(300, 250, "global", "tout").write(); adFactory.getCmAd(300, 100, "article", "tout").write(); ArchiveJune 2010SMTWTFS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 More News from Our Partners CNN Opinion: Why Facebook is condescending Three days, 1.7 million sales for iPhone 4 How 'Annoying Orange' is taking over Huffington Post Damien Hoffman: Foursquare Founder Dennis Crowley's Best Advice for Aspiring Entrepreneurs Inder Sidhu: Profiles In Doing Both: Retail's New Trailblazer Is Divorce Contagious? DailyFinance.com The Supreme Court's 'Landmark' Patent Ruling Didn't Really Change Much Hearst Magazines Hires Conde Nast's David Carey as New President Supreme Court Strikes Down Part of Sarbanes-Oxley Rotten Tomato Box Office Guru Wrapup: Toy Story 3 Stays on Top Weekly Ketchup: Disney Makes Plans for Dr. Strange Discover Retirement, CIA style, in the Red Trailer Life G-20 Protesters vs. Police, 2010 The Korean War You Never Knew The Week's Best Photos: 6.25.10 More on TIME.com » Enough Is Enough: Video Replays Must Be Used Can McChrystal Help Obama's Bipartisan Restart? New Studies Question Safety of Diabetes Drug Avandia Quotes of the Day » "Having the checks and balances of another person that you trust and ultimately respect telling you when you're full of it ... is extremely valuable." MAX LEVCHIN, co-founder of PayPal, on the importance of a business partner when starting new ventures More Quotes » var ad = adFactory.getAd(88, 31); ad.setPosition(13) ad.write(); Today in Pictures » Remembered Stay Connected with TIME.com Learn More » Subscribe to RSS Feeds Sign Up for Newsletters Add TIME Widgets Read TIME Mobile on Your Phone Become a Fan of TIME Get TIME Twitter Updates adFactory.getCmAd(115, 42, "homepage", "tout").write(); © 2010 Time Inc. All rights reserved | Privacy Policy | RSS | Newsletter | TIME For Kids | LIFE.com Subscribe | Contact Us | Terms of Use | Media Kit | Reprints & Permissions | Opinion Leaders Panel | Help | Site Map TiiAdTrackRevSci(); function tiQuantcast() { } _qoptions={ qacct:"p-5dyPa639IrgIw", labels:tiQuantcast() } Powered by WordPress.com VIP var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); try { var pageTracker = _gat._getTracker("UA-10268691-1"); pageTracker._trackPageview(); } catch(err) {} var _sf_async_config={uid:3088,domain:"curiouscapitalist.blogs.time.com",pingServer:"ptimeinc.chartbeat.net"}; (function(){ function loadChartbeat() { window._sf_endpt=(new Date()).getTime(); var e = document.createElement('script'); e.setAttribute('language', 'javascript'); e.setAttribute('type', 'text/javascript'); e.setAttribute('src', (("https:" == document.location.protocol) ? "https://s3.amazonaws.com/" : "http://") + "static.chartbeat.com/js/chartbeat.js"); document.body.appendChild(e); } var oldonload = window.onload; window.onload = (typeof window.onload != 'function') ? loadChartbeat : function() { oldonload(); loadChartbeat(); }; })(); _qacct='p-18-mFEk4J448M';_qoptions={labels:'adt.0,language.en,vip.timecuriouscapitalist'}; try{COMSCORE.beacon({c1:2,c2:7518284});}catch(e){} st_go({'blog':'5320466','v':'wpcom','user_id':'0','post':'10794','subd':'timecuriouscapitalist'}); ex_go({'crypt':'RDZ8LFkxbXF2TVluJVFmT0xoZkVaUCVrM3R3cCU2Wi10dT9ta3VEZG89N3pwOFdMRVB3Rls4VHhUemlpOFY0W1V+X0prOW16LU5rfktuc29XPUtiMXlVUyY9aiszRzc2T3lKJnlXcEpSOTBkQVRYd3xWYVIvZEN+MV9fflpoNTlBSFk2aTRSUGRiUy1XWGFGK0pJU0xHUkFUX3BWWXFlWTBrOHF0My01ZkJxT1VYQm8ld01qQmZOZWxERm1TaDJaXSZ3NEpCfCZNR1ZxM2tkZiVJQlcyODE1QzB4SWg='}); addLoadEvent(function(){linktracker_init('5320466',10794);}); Read Full Article »