Publications
Divided we fall:
can the G20 save globalisation?
| Authors: | John Springford Giles Wilkes |
| Date of Publication: | March 2009 |
By rejecting a co-ordinated fiscal stimulus before the G20 meeting starts, European leaders are risking the chances of an early recovery from the world economic slump – and with it their own agenda of long term financial market reform. In ‘Divided we fall: can the G20 save globalisation?’, liberal think tank CentreForum calls on leaders to focus on the urgent task of ending the global recession, while resisting the temptation to return to a politically popular but economically perilous protectionism.
The paper sets out four challenges for the G20 leaders. The first two – stimulating consumer demand and recapitalising the banks – are about jolting the global economy out of a dangerous deflationary spiral. The second two – restructuring international finance and reforming the international financial institutions – are longer term reforms that must be undertaken to stop this type of crisis from happening again. But success in each of these tasks, according to CentreForum, depends on whether the G20 leaders are prepared to forsake political populism and economic nationalism to agree upon a robust and co-ordinated rescue plan.
Explaining, CentreForum’s chief economist Giles Wilkes said:
“At a time when global co-operation has never been more important, it is worrying that the G20 leaders would rather pander to domestic pressures than craft a united response to the economic crisis. The Americans have often taken an isolationist approach to regulation, and that needs to change. But now it is the Europeans who pose the greatest threat to international consensus. They are wrong to sit back and let China and the US shoulder the burden of restoring demand to a shattered world economy. The crisis may have started in the United States, but no one, the Americans included, can solve it alone. European opposition to the stimulus threatens agreement elsewhere on the agenda, such as financial regulatory reform, and the restructuring of the Bretton Woods institutions.”
In its guide to the G20 summit, CentreForum recommends that the leaders agree to:
- Co-ordinate fiscal stimulus, to boost domestic demand
- Develop a common approach to recapitalising banks
- Co-ordinate the actions of national financial regulators along the lines recommended for the EU in the recent Larosière report
- Reform the IMF, making it bigger and more representative of emerging economies. This should in turn help to smooth out imbalances between the developed and developing world, a major cause of the crisis
- Create a permanent G20, with a secretariat, to encourage a more co-operative approach to financial, fiscal and currency policy in the future.