Britannia Radio

I knew  and liked the BBC's economics editor Stephanie Flanders when 
she hadn't started her career,  but , despite that handicap, she's 
turned out quite one of the best of the BBC stable.

Here she looks at the state of play to date in the lead up to the 
G20.  The 14/3/09 Finance Ministers meeting in Horsham has come and 
gone with a few pointers, most of them negative.

The thing that strikes me (and SF: touches on it) is that the USA is 
in there pitching for action to get out of the crisis while the EU 
countries are more concerned with stopping it all happening again - 
horses, stable doors. bolts and fleeing spring to mind!

Anyway as things progress watch Stephanie.  She knows what she's 
talking about!
XXXXXXXXXX CS  
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BBC Blogs - - - - -
STEPHANIE FLANDERS 12.3.09
Passing the hat
. Stephanie Flanders

You can take them to the Summit but you can't make them jump. Gordon 
Brown's worst nightmare would be for G20 leaders to come to London 
next month and agree to not very much at all. That's still possible. 
But thanks to the US Treasury Secretary, Tim Geithner, we might at 
least get a juicy row.

Yesterday Tim Geithner finally unveiled his wish-list for the summit, 
which he will be pushing hard at this weekend's preparatory meetings 
of finance ministers and central bank governors in Sussex. He has, in 
the phrase beloved of US Treasury officials 'committed substance'. 
There's the usual boilerplate about 're-affirming commitments to' and 
'strengthening cooperation against'. But there are also some real 
policy proposals - proposals with which (speak it softly) other parts 
of the G20 will not agree.

The International Monetary Fund is front and centre of these plans: 
that in itself marks a break with the past. US administrations have 
usually regarded the Fund with distrust - even while they were 
attempting to dictate its every move. Geithner wants to give it more 
firepower than even the Fund itself had called for.

As I have noted elsewhere, the Fund's Executive Board have asked for 
an extra $250bn to help emerging economies in trouble. But the US 
Treasury Secretary wants to give it an extra $500bn, by expanding the 
New Arrangements to Borrow, or NAB, a standing facility the IMF has 
to borrow from 26 economies, which now stands at only $50bn. He would 
even put the first $100bn in the pot himself (that sounds more 
generous than it is - for arcane reasons, as far as the Federal 
budget bean-counters are concerned, it wouldn't cost the US a dime).

This is music to the ears of British officials, who've spent months 
persuading the Americans of the case for more IMF cash. Now the US 
proposal is out there, the Summiteers can get on with the job of 
passing the hat.

Geithner said he would like to expand the list of lenders to include 
more of the G20. If you're listening, China, that means especially 
you.  [Since SF: wrote that China has enigmatically - what else? but 
presumably in response - questioned the safety of all the Chinese 
money the Americans hold!! -cs]   But if big emerging market 
economies are going to cough up more money to save the world, they 
will want a greater say in how that world is run - or failing that, 
at least the IMF. Right now China has less than 4% of the votes in 
the Fund, only slightly more than Switzerland. One question for the 
London Summit is how much the rich economies will have to loosen 
their grip on the international institutions to get the emerging 
economies to come along.

Among the rich economies, Japan has already agreed to lend the IMF an 
extra $100bn. It's unlikely to be asked to give any more. The big 
surplus economy that hasn't coughed up is Germany. With an election 
later this year, the Germans are shaping up to be the biggest 
potential spoilers of Gordon Brown's party.

Germany has never been a big fan of the IMF, although it likes the 
fact that the IMF puts tough conditions on its cash (unlike some). 
It's possible Chancellor Merkel and her EU colleagues will agree to 
put more into the pot. After all, as I've noted previously, it's in 
their own interest: nearly all of the countries likely to need help 
from the Fund in the next year or so are in Central and Eastern 
Europe. But after America's efforts this week to shame other 
economies into bigger stimulus packages, the Europeans may not be in 
the mood for a deal.

Larry Summers, President Obama's key economic advisor, beat the drum 
for more fiscal stimulus by other G20 governments in an interview 
this week with the Financial Times. Geithner followed this up 
yesterday with a number: he said that the 2% of global GDP stimulus 
called for by the IMF in 2009 and 2010 was a "reasonable benchmark", 
and he wants the IMF to report quarterly on government's efforts to 
get economic growth back to potential. He stopped short of insisting 
everyone sign up to 2%, but to cite that as a benchmark was 
inflammatory, because it threatens to open up a whole debate about 
burden-sharing at the Summit which the Europeans would rather not have.

The IMF reckons that between them the G20 countries are implementing 
about $700bn in economic stimulus in 2009, which is about 1.4% of 
their GDP and just over 1% of the world's. Three countries - US, 
China and Japan - account for nearly two thirds of that total. The 
picture for 2010 is even more skewed, with the US accounting for 60% 
of the stimulus currently in train. By then, the IMF reckons there 
will be little, if any, extra stimulus operating in the UK. The 
additional stimulus in France will be just 0.7% in 2009 and 2010.

If the global economy is tanking, you might think it obvious that 
governments should do as much as their budget position will allow. 
And most economists would say that France and Germany could afford to 
do more. But of course it's not that simple. For one thing, all the 
US talk of 'discretionary' stimulus packages leaves out all the 
stimulus that happens naturally as a result of a recession - like 
extra spending on unemployment benefits. Thanks to their larger 
welfare states, we know these automatic stabilisers are much larger 
in Europe than the US.

In fact, if you look at what's happening to the overall fiscal 
balance, the US isn't doing that much more than other countries. The 
deterioration in the German budget is going to be almost as large as 
America's, though of course Germany's entered the crisis in a 
stronger state.

The Americans accept some of this. They might even accept that they 
are going to have to have further stimulus packages if the recession 
turns out to be more prolonged. But Geithner's focus on the IMF and 
its analysis has put an uncomfortable weight on the institution's 
fiscal economists.

It is these hapless souls who have to work out what is and is not a 
stimulus in every country and estimate the global effect. These days, 
they are finding a lot of unwelcome diplomatic energy is being 
directed their way. There are other issues on the G20 agenda which 
I'll write about in the coming days. But Larry Summers used to joke 
that the IMF stood for It's Mostly Fiscal. Right now, it mostly is.

=====AND 14.3.09
Talk is cheap
. Stephanie Flanders

It seemed like a good idea at the time. Downing Street was ecstatic 
last year when Gordon Brown stole the second G20 Summit for himself. 
In the wake of the UK bank bailout plan, a London summit seemed 
another opportunity to show the British Prime Minister at the centre 
of global events.

After this weekend's meeting of finance ministers and central bank 
governors, feelings are more mixed. After all, it's no good being the 
global ringmaster if the result is indeed a circus.

Nearly every country in the G20 has seen their economy weaken further 
since they met in Washington. That makes the summit seem that much 
more important. It also makes the traditional content of meetings 
such as these look curiously beside the point.
Yes, we have to reform the global financial system to prevent the 
crisis being repeated. But what good are a set of "agreed principles" 
and "understandings" for future reform, if your main job these days 
is preventing your biggest banks from going down the drain?

In a few days the US Treasury Secretary, Tim Geithner, is going to 
provide details of his scheme for dealing with toxic US bank assets. 
If it adds up, that could do more to underpin confidence in the US 
and global financial system than anything agreed in Horsham.

In effect, this is the tension at the heart of this week's "rifts" 
between the US and Europe. The Americans don't deny the need for 
major reform, including more coordinated international surveillance 
(though they don't necessarily want the IMF to be in the front seat).

But they think the right kind of reform needs serious thought, 
whereas more global fiscal stimulus is a no-brainer.

Against this the Europeans can claim, with some justice, that the G20 
is not the place to decide your national budget. They have passed a 
fair amount of fiscal stimulus - more than the Americans give them 
credit for.

In their view, if the crisis has forced some agreement on a road map 
for future reform - isn't the G20 Summit of 2009 precisely the time 
to put that in writing, before quieter economic times cause everyone 
to change their minds?

The trouble is, the areas of agreement are a little banal. Today's 
[Sat 14.3/09]  communiqué talked of the need for bank capital 
standards to be less pro-cyclical. These days, few would disagree.

It also talked about having the right system for handling toxic, or 
"impaired" assets. But how do you price them? Do you try to stick 
with the value on banks' own balance sheets, or go for something more 
realistic?

On this vexed but fundamental question the G20 is unsurprisingly 
silent, because everyone is doing different things and no-one knows 
which works best. You would be forgiven for wondering if it was worth 
mentioning at all.

In fact, there were probably only ever two areas where the G20 was in 
a position to deliver something of real value to the global economy 
here and now.

One they will achieve, a substantial increase in the IMF's resources 
for helping emerging market economies - probably $500bn, but 
ministers are saving the number for their bosses to "agree" in April 
(they won't have very much else).

The other contribution would have been an ironclad commitment to 
keeping all their economies open in the months and years ahead. There 
will be language condemning protectionism - just as there was at the 
November meeting.

But talk is cheap. Agreeing to an absolute standstill on all trade 
and capital barriers - so that countries could not raise tariffs or 
other constraints from their current levels, even where permitted 
under WTO rules - would have meant something. Especially if it were 
policed by some independent international body.

If the Americans really wanted to focus on the immediate risks facing 
the global economy, championing such a standstill would have been a 
great way to prove it, even if it caused a bit of bother at home. But 
Secretary Geithner didn't even try, and nor did anyone else. What we 
had instead was Horsham!