President of the Peterson Institute Adam Posen says Britain’s austerity wasn’t good for its economy and wouldn’t be good in the U.S. He tells WSJ’s Simon Constable at the World Economic Forum there is a bright future ahead for the U.S. economy. Photo: Getty Images
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Black Books: EU shadow economy booms as austerity bites
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1 of 2. (From R-L) Germany’s Finance Minister Wolfgang Schaeuble, Britain’s Chancellor of the Exchequer George Osborne, Russia’s Finance Minister Anton Siluanov, Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), and France’s Finance Minister Pierre Moscovici attend a news conference, part of the G20 finance ministers and central bank governors’ meeting, in Moscow, July 19, 2013.
Credit: Reuters/Grigory Dukor
MOSCOW |
MOSCOW (Reuters) – The Group of 20 nations put growth ahead of austerity as it seeks to rebalance a multi-speed global economy, pledging to shift policy carefully so that recovery is not derailed by volatile financial markets.
Finance ministers and central bank governors meeting in Moscow on Saturday will put the finishing touches to a joint communique that delegates said was not changed after they met for dinner on Friday night.
Indications that the U.S. Federal Reserve would scale back its monetary stimulus were the focus of intense interest, especially from emerging economies hit by an ensuing selloff in stocks and bonds, and a flight to the dollar.
While the U.S. recovery is gaining traction, China’s export motor is sputtering, Japan’s bid to break out of deflation has not reached escape velocity, and demand in the euro zone is too weak to sustain a job-creating recovery.
“We do not see any revival of growth in Europe yet, and Japan – we’re keeping our fingers crossed,” said Indian Finance Minister Chidambaram Palaniappan.
“The best case scenario for today would be for the advanced economies to get growth going. They must keep in mind the impact of their actions on the large emerging economies.”
A final draft, obtained by Reuters, said an action plan to boost jobs and growth, while rebalancing global demand and debt, would be readied for a G20 leaders summit hosted by President Vladimir Putin in September.
“We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing,” the draft said. “Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated.”
In return for its pledge to ‘message’ its monetary policy intentions clearly, Washington managed to ensure that the text contained no binding fiscal targets, saying that consolidation should be “calibrated” to economic conditions.
Sources at the meeting said Germany was less assertive than previously in seeking binding targets to reduce borrowing to follow on from a deal struck in Toronto in 2010, with the improving U.S. economy adding weight to Washington’s call to focus on growth.
With youth unemployment rates approaching 60 percent in euro zone strugglers Greece and Spain, the growth versus austerity debate has shifted – reflected in the fact that G20 finance and labor ministers held a joint session on Friday.
The crisis in the euro-zone periphery has been exacerbated by capital outflows, and the communique pledged to move “decisively” towards creating a banking union in Europe that could revive cross-border lending.
“The priority in the short term is growth, growth, growth,” French Finance Minister Pierre Moscovici told reporters.
Unlike at previous G20 gatherings, exchange rates and the threat of competitive devaluations barely figured, delegates said.
TREAD WITH CARE
A paper that International Monetary Fund staff prepared for the Moscow meeting warned financial market turmoil could deepen unless policymakers were careful.
“The current market turbulence could continue and deepen,” the paper, seen by Reuters, said. “The eventual exit from low rates and unconventional monetary policy in advanced economies could pose challenges for emerging economies, especially if it proceeds too fast or is not well communicated.”
Ben Bernanke’s announcement two months ago that the Fed may start to wind down its $ 85 billion in monthly bond purchases sparked a panicky sell-off, particularly in emerging markets.
Investors were calmed by testimony to Congress this week by Bernanke, who is not in Moscow, although he said the exit plan from money-printing remained on the cards.
The G20 accounts for 90 percent of the world economy and two-thirds of its population – many living in the large emerging economies at greatest risk of a reversal of capital inflows that have been one of the side effects of the Fed stimulus.
China is under pressure to encourage domestic demand-driven growth and allow greater exchange rate flexibility as part of wider efforts to rebalance the global economy which features a huge Chinese surplus and matching U.S. deficit.
Beijing offered an early olive branch, removing a floor on the rates banks can charge clients for loans, which should reduce the cost of borrowing for companies and households. Yet this was not discussed at the G20 talks.
Delegates said the G20 ministers would discuss China’s policy mix on Saturday. Also on the agenda will be the state of play with global financial regulation, including the need to look at “too big to fail” insurers, and energy sustainability and climate finance.
Japanese Finance Minister Taro Aso labeled China’s move a step in the right direction. Bank of Japan Governor Haruhiko Kuroda said he would “strongly pursue” quantitative easing policies to lift growth and end deflation.
Japan, which holds an upper house election on Sunday, in turn drew criticism for giving little detail on structural reforms billed as the ‘third arrow’ of Prime Minister Shinzo Abe’s economic turnaround plan, G20 sources said.
(Reporting by Lidia Kelly, Maya Dyakina, Jan Strupczewski, Gernot Heller, Katya Golubkova, Tetsushi Kajimoto and Alessandra Prentice in Moscow, Anna Yukhananov in Washington. Writing by Douglas Busvine/Mike Peacock)
Athens (CNN) — A 24-hour general strike called Tuesday in protest over further austerity measures has brought many public services in Greece to a grinding halt.
Public transit systems, flights and garbage collection services are affected by the nationwide action — the fourth such to be held this year — while hospitals are running on skeleton staffing.
Labor unions held a rally in central Athens on Tuesday morning, to be followed by a march to the national parliament building.
A rally was also held outside parliament Monday night, but it did not attract large numbers of protesters. Many people have left the capital to escape the summer heat.
The general strike takes place ahead of a vote in parliament Wednesday on a bill containing further austerity measures. One would make it easier to fire people in the civil sector.
They must be voted in for Greece to receive the next tranche of international bailout funds.
The measures are expected to go through, as the coalition government holds a slim majority in parliament.
Greece, the first country to receive a European Union bailout more than three years ago, is struggling to bring its huge public debt under control.
The country is in its sixth straight year of recession, and unemployment stood at 26.8% as of March this year, according to official figures. The jobless rate among young people in Greece has soared to nearly 60%.
CNN’s Elinda Labropoulou reported in Athens, and Laura Smith-Spark wrote in London.
CNN.com Recently Published/Updated
Almost everything you need to know about the self-destructive economic policy coming out of Congress was contained in two simple statements this week. While the Federal Reserve warned that “fiscal policy is restraining economic growth,” the Republican National Committee released an ad crowing that “the sequester is here to stay.” Judging by the April jobs numbers published today, the Republican Party can declare “mission accomplished.” After all, the public sector shed another 11,000 workers last month, pushing the total just since March 2010 to 625,000. Worse still, a new analysis suggests, compared to past recoveries austerity policies at the federal, state and local government level have cost the U.S. up to 2.2 million jobs.
That’s the conclusion from the Hamilton Project. It’s not just the collapse of the housing market and the implosion of the financial sector which resulted in the slowest American recovery since World War II. Much of the damage has been self-inflicted by policymakers in Washington and the 50 states. Noting that the private sector has added 6.8 million jobs since March 2010 and 2.2 million in just the last year, the public sector “has been a drag on the economy.”
We find that the last several years’ policy choices are starkly different from those following previous recessions. Specifically, there are 2.2 million fewer jobs today, relative to what would have occurred with the policy response typical of the five preceding recessions.
The Hamilton Project is far from alone in lamenting the “anti-stimulus” of cutbacks across all levels of government. In April 2012, the Economic Policy Institute similarly concluded:
The current recovery is the only one that has seen public-sector losses over its first 31 months…If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.
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