G20 compromise
February 19, 2011
The Group of 20 developed and developing nations decided Saturday which economic indicators to eye, as warnings surfaced of crippling food shortages and worldwide inflation.
Meeting in Paris, financial ministers and central bankers from 20 of the world's largest economies reached an agreement on which indicators they would monitor in their efforts to avoid a repeat of the 2008 global financial crisis.
G20 members, who account for 85 percent of the world's economy, decided to track countries' public debt and fiscal deficits, private savings rate and private debt, as well as trade balances and net investment income flows.
China throws its weight around
French Finance Minister Christine Lagarde said, however, that exchange rates and currency reserves would not be used as indicators. That decision was made under pressure from China, which insisted that there be no mention of real effective exchange rates or foreign currency reserves.
Several western countries accuse China of distorting the world economy by amassing foreign currencies while keeping the yuan artificially undervalued to give an advantage to Chinese exports.
"There is a broad consensus that the major economies – not just Europe, Japan and the United States, but also the large emerging economies – need to allow their exchange rates to adjust in response to market forces," said US Treasury Secretary Timothy Geithner.
'Final compromise'
Still, France, which currently holds the G20 presidency, appeared pleased with the meeting's results.
"The negotiations were frank, sometimes tense, but fruitful" eventually leading to an agreement "which represents a spirit of compromise and of ambition," Lagarde told reporters.
French President Nicolas Sarkozy had warned in his opening speech on Friday that failure to put aside national interests could have destroyed the G20, which became the top global forum in the wake of the 2008 crisis.
France wanted an agreement on indicators as soon as possible so the International Monetary Fund could make economic policy recommendations to nations in the second half of the year.
German Finance Minister Wolfgang Schäuble also expressed contentment. "It's a result we can all live with," he said.
Lagarde said that the agreed indicators would not be used as binding targets but would direct guidelines for creating a mutual assessment process and policies to reduce distortions.
Stern warnings
Meanwhile, World Bank President Robert Zoellick warned G20 ministers and central bankers that soaring food prices threatened further political instability.
"I mentioned that we are reaching a danger point," Zoellick said, adding that he had urged the meeting to "put food first in 2011."
Zoellick said rising prices would eventually result in increased food supplies but in the intervening couple of years, "there could be an awful lot of turmoil and governments could fall and societies could go into turmoil."
High food and fuel costs have been a key factor driving political unrest across the Middle East and North Africa in recent weeks.
The chief of Germany's central bank, Axel Weber, also warned against worldwide inflation.
"It came across quite clearly that the price climate is blurred across the globe and that, in terms of price stability, the risk of hikes is dominant," the Bundesbank president said after the meeting. Weber, who is known for his tough stance against inflation, added that even Germany and Europe were at risk.
He did, however, offer cautious hope that markets were continuing to recover and insecurity was on the decline.
Author: David Levitz (AFP, dpa, Reuters)
Editor: Kyle James