Global economic coordination seems to be in tatters even as the leaders of the Group of 20 (G-20) nations prepare to meet this weekend in Toronto.
This group of 20 major developed and developing economies emerged as the most influential platform for global policy in the aftermath of the Western financial crisis of 2008. The sheer brutality of the financial market squeeze and the subsequent collapse in global output and trade acted as glue that helped a disparate group of countries put aside their natural differences. They all participated in a massive global stimulus to prevent a complete economic collapse.
A year and a half down the line, economies have stabilized as a result of that stimulus though public sector balance sheets are in a mess and the markets are attacking currencies of highly indebted countries. A huge post-crisis fissure has opened up in the G-20 as each leader seeks to address unique domestic interests, with the US insisting that governments need to keep spending to avoid the dreaded double-dip recession, while Europe is already in the midst of fiscal tightening. There are also deep divisions on what to do about the financial sector, with countries divided between those who favour a bank tax and those who favour tighter regulation.
India has made its views clear on both contentious issues, saying that it will continue to exit its loose fiscal and monetary policies while batting for more stringent financial sector regulation rather than a bank tax.
This puts it in opposition with the US even though it has eagerly joined the latter’s coalition of the willing against China’s mercantilist exchange rate policies, an issue that would likely have dominated the Toronto meeting but for China’s pre-emptive strike through a well-timed but ambiguous statement on breaking the yuan’s peg with the dollar.
The divisions within the G-20 have grown in recent months, and India would do well to act as a balancing voice of compromise in Toronto and beyond. Our ultimate interest lies in ensuring that the G-20 does not become a squabbling group that eventually makes way for the revival of rich nation clubs such as the Group of Eight.
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