Finance officials from the G-20 economies met on Friday to develop plans on how to measure if nations are causing imbalances that could pose a risk to the global economy. Among the concerns are large government budget deficits and debt, high personal saving rates and debt, and large trade surpluses or deficits. The ministers also settled on approaches for evaluating the causes of the imbalances and barriers for reducing them. At a previous meeting in Pittsburg in 2009, the members of the G-20 agreed that the global economy was too dependent on U.S. consumers. During this meeting in 2009, the members committed to “rebalancing” global growth. They developed plans to encourage countries such as China and Germany which have current-account surpluses to focus more on stimulating domestic consumption and import more and countries such as the United States to focus more on exporting their products. In the meeting this weekend, the members provided a communiqué that they had agreed to subject the policies of seven of the world’s largest economies to greater scrutiny. The International Monetary Fund (IMF) will be responsible for assessing how nations are performing compared to the benchmark measures created by the G-20, but the IMF and the G-20 only have peer pressure as a way to encourage members to change their policies. The U.S., Japan, Germany, China, France, the U.K. and India are the seven countries that will be subject to the detailed review.

QUESTIONS FOR DISCUSSION:

1. The U.S. current-account deficit and the Chinese current-account surplus are roughly similar to where they were in 2009 during the Pittsburgh summit. What are the challenges the G-20 faces in attempting to “rebalance” global growth?
2. Given that there is a two-speed recovery to the global financial crisis with fast-growing emerging markets recovering more quickly than advanced economies, is there any incentive for the emerging markets to comply with the G-20 recommendations?
3. Part of the reason that the G-20’s efforts to stimulate growth has yet to gain steam appears to be that China may be concerned that the desire to rebalance is simply a way to put political pressure on China to boost the value of its currency, the yuan. What sanctions could be imposed to force China to change its policies? What would be the potential trade-offs of imposing sanctions on China?

SOURCE: Reddy, S., & Davis, B. (2011, April 16). G-20 sets plan on imbalances. Wall Street Journal, p. A7. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704495004576265190925831576.html)

RELATED ARTICLE: Davis, B. (2011, April 15). G-20’s efforts on growth stall. Wall Street Journal, p. A9. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704547604576262942600178716.html)

Related video clip: G-20 Looks for Next Hot Spot. (Retrievable online at: http://www.reuters.com/news/video?videoId=202590349

Related video clip: G-20 Claims Major Step Forward with Plan. (Retrievable online at: http://www.euronews.net/2011/04/16/g20-claims-major-step-forward-with-plan/)