G20 SUMMIT IN SOUTH KOREA:WITH WORLD leaders lining up to find agreement at this week's G20 meeting of rich and emerging economies in the South Korean capital, potential trouble spots at the summit were already emerging as they stepped off the plane at Seoul's Incheon airport.
According to leaked communiqué details – which emerged before the leaders met – the G20 countries will move towards more market-determined currency rates and offer no new proposals on how to ease tensions between struggling rich nations and new economic powers such as China or Brazil.
The G20 leaders meet today and tomorrow, desperate to show they still have the co-operative spirit they cobbled together during the onset of the financial crisis in 2008. But ever-louder grumblings over foreign exchange rates and trade have exposed deep international rifts within the global economic community.
The G20 leaders had hoped this week’s gathering, the fifth since the financial crisis exploded in 2008, would mark the beginning of a new era of global co-operation. Hosts South Korea printed banners proclaiming a slogan of “Shared Growth Beyond Crisis”.
Germany, recently relegated to second position in the world’s biggest exporter stakes after China, said it would not support proposals at the G20 to set limits the to current account balances of countries.
“Germany won’t support quantitative [easing] targets,” Chancellor Angela Merkel said at a briefing before flying to the summit, comments that will set Germany on a collision course with the US. Despite losing the top spot to China, Germany’s economy is set to grow 3.7 per cent this year, largely due to the success of its exports.
US treasury secretary Timothy Geithner last month urged countries to commit to keeping their current account imbalances below 4 per cent of gross domestic product over the next few years.
US president Barack Obama, in a letter to the G20 made public yesterday, said “economies that previously relied on exports to offset weaknesses in their own demand” must change.
As he arrived for the summit, Mr Obama was preaching his message that a strong US economy is vital to the global recovery, although, increasingly, Asian nations are looking more to their own domestic markets for inspiration. If even countries seen as the closest allies can’t find areas on which to agree, the prospects for a fractious and bad-tempered G20 are growing.
While open conflict between the US and Germany, two of the closest allies in the Western world, is unlikely, the tensions between Washington and Berlin are indicative of a shifting power balance eastwards towards countries like China.
In calling for current account limits, Washington was effectively trying to hint that Beijing needs to let its massively undervalued yuan rise, but Germany, whose current-account surplus is about 6 per cent of GDP, according to the International Monetary Fund, is a major opponent of the plan.
Financial markets are anxious about Europe’s ongoing debt problems and issues such as Ireland’s perceived inability to get its public finances in shape are casting a pall over the meeting.
Security is tight in Seoul, with police and armed forces on high alert, but there have been no big demonstrations so far.
