Pittsburgh: Leaders of the world’s biggest rich and developing countries meet on Thursday to seek ways to nurture the economic recovery and build safeguards against future catastrophes.
US president Barack Obama, hosting his first Group of 20 summit, laid out an agenda that includes tackling one of the thorniest problems in the modern global economy — how to even out massive imbalances between export powerhouses such as China and the deeply indebted United States.
Short-term expectations for the summit were low. While there appeared to be consensus on principles such as building a more balanced world economy and clamping down on risky lending practices by banks to prevent a repeat of the financial crisis, there was little agreement on how it should be done.
The two-day meeting in this Pennsylvania city, which has seen its own economic hard times as its once mighty steel industry lost ground to global competitors, starts with various bilateral talks on Thursday. Obama hosts a reception and working dinner in the evening.
It is the third gathering of the G-20 leaders since a meeting soon after the September 2008 collapse of Lehman Brothers investment bank that ushered in a severe global recession. Even countries that had escaped the banking crisis were hit by a steep drop in global trade, a stark reminder that the world economy is closely intertwined.
Now that the recession in many countries appears to be ending, the G-20 must sustain the sense of urgency seen in April when it agreed to work together to rescue the world economy and pledged hundreds of billions of dollars to finance the International Monetary Fund’s crisis-fighting efforts.
There are plenty of distractions this time. Obama has his hands full with domestic policy headaches such as his drive to reform the U.S. healthcare system. German chancellor Angela Merkel is facing an election on Sunday.
Don’t Count On US Consumption
US treasury secretary Timothy Geithner, who is expected to meet with G-20 officials on Thursday, said the world should grasp that the US must increase its savings, meaning that countries that were counting on US consumption to drive their own growth would have to look elsewhere.
“If they learn anything from this crisis, it’s that basic imperative,” he said on Wednesday.
But some countries were uncomfortable with setting any strict limits on how large the trading imbalances could be, and chafed at the idea of the G20 or the International Monetary Fund meddling in domestic economic policy.
Geithner insisted that was not the intention, but given those concerns it was unlikely that the G-20 would commit this week to anything beyond basic ideas about rebalancing.
Illustrating the scale of the problem, China’s private consumption equals little more than a third of its economy, while in the United States and Britain, consumption accounted for nearly three-quarters of the economy in boom times. By contrast, Chinese and Indian households last year saved about 40% and 32% of their disposable incomes. The US savings rate was just 3.2%.
Many European leaders were pushing for the G-20 to put greater emphasis on cracking down on lavish pay packages and bonuses for bankers whose risky investments later turned bad.
They also wanted to see more progress from the US in addressing climate change, although it was unlikely that much would be accomplished at this meeting.
The clock is ticking for the United States to come through with some tangible policy before an international meeting on curbing global warming in Copenhagen in December.
Emerging economies such as Brazil, which were caught in the downdraft of the financial crisis even though their banks had limited direct exposure to bad assets, were keen on forging agreement on tougher regulatory rules at this G-20.
“A senseless way of thinking and acting, which dominated the world for decades, has proved itself bankrupt,” Brazilian president Luiz Inacio Lula da Silva said of the economic models that soft-pedaled on regulation.