FRENCH PRESIDENT Nicolas Sarkozy has warned leaders from the world’s biggest economies that urgent reforms must be agreed to strengthen the global recovery and avert future financial crises.
As G20 finance ministers and central bank chiefs gathered in Paris for a summit, they were split down the middle over key proposals to measure imbalances in the global economy.
After inconclusive day-long talks yesterday, Mr Sarkozy said in a speech that imbalances in the global recovery underlined the need for improved co-ordination.
However, China’s rejection of plans to use real exchange rates and currency reserves to measure global economic imbalances threw doubt over the prospect of an agreement being reached this weekend.
France has pinpointed agreement on indicators to measure such imbalances as a core aim of its G20 presidency. It is pressing for a stronger role for the International Monetary Fund and a new tax on financial transactions.
Mr Sarkozy urged G20 leaders not to give priority to their national interest. “A strength of the G20 is the co-ordination of economic policy. If we do nothing, global imbalances will again take root.”
He hoped “to avoid debates that get bogged down in interminable discussions” on indicators, diverting leaders from taking critical decisions on economic policy and fulfilling their “duty” to agree co-ordinated measures.
In spite of Mr Sarkozy’s push for a deal to measure imbalances, Chinese finance minister Xie Xuren said the G20 should use trade figures rather than current account balances to assess economic distortions.
“We think it is not appropriate to use real effective exchange rates and reserves,” Mr Xie said. “Emerging markets, to deal with financial crises and economic shocks, they need to set up a certain amount of reserves.”
The Japanese finance minister Yoshihiko Noda said he was not sure any agreement would be reached on a set of indicators to assess economic equilibrium. “From working group discussions, I get the impression countries are now split in half about their opinions.”
An IMF report prepared for the G20 meeting said a two-speed world recovery had taken hold, increasing the risk of a future crisis.
French finance minister Christine Lagarde said imbalances had been redressed somewhat during the economic downturn but were growing again as the economy recovered. “That can’t go on too long . . . As is often the case with big imbalances, a system collapses,” Ms Lagarde added
Addressing a Banque de France forum yesterday, Bank of England governor Mervyn King said the world risked protectionism or another financial crisis if policymakers failed to reduce currency distortions and other imbalances.
He also said it was not possible to imagine an infinite supply of safe assets. “In the end, whether even sovereign debt is considered a safe asset must depend on the taxable capacity of the citizens and we all know from today and from history that there are limits to that.
“Risk is with us. We need to learn better not just how to manage risk, but more importantly in my view, how to think through the need to make particular aspects of our financial system robust with respect to shocks that come along.”
At the same event, US Federal Reserve chairman Ben Bernanke dismissed the charge that easy money policies in advanced economies were overheating rapidly growing advanced economies.
Without identifying China, he said faster growth in emerging markets and “the maintenance of undervalued currencies by some countries” had contributed to price rises and unsustainable patterns of global spending. Countries with large trade surpluses should let their currencies appreciate to aid the global economy.
