Whether Harold Macmillan, UK prime minister in the early 1960s, actually uttered this expression or not, is less important than the fact that what is supposed to be primarily an economic summit ended up being overtaken by the ongoing events in Syria. This is not surprising of course. Yet, underlying economic conditions around the world, as the G20 declaration admits, continue to weigh on central banks and finance ministries. The so-called St. Petersburg Action Plan sounds like a global version of the Canadian government’s “Action Plan,” still apparently alive and well, but essentially on autopilot since the end of the global financial crisis.

The St. Petersburg Action Plan essentially amounts to a listing of various programs and policies already underway, reflecting G20 members’ sovereign desire to deal with their economic problems. There is, of course, the obligatory reference to the need to cooperate, but only once is the term used (on page 5), and the sentiment is effectively neutralized by the primacy of domestic concerns. There is also a reference to the advisability of coordinated action (on page 4), but the laundry list of projects and programs give little indication that coordination of any kind has been achieved.

It would be unfair to say that there was absolutely nothing in the way of progress. A strategy and a timetable exists for dealing with the shadow banking sector, which created so much grief for central banks when the global financial crisis erupted. While the Financial Stability Board has made considerable progress, the last few months have seen a watering down of rules meant to contain the financial sector’s ability to create conditions for a new crisis.

On the macroeconomic front, it is interesting that the “G20 Leaders’ Declaration” emphasizes the primacy of price stability when the high debt loads in various parts of the world may not be so easily managed unless the old ways of inflation enter the picture. Since there is nothing concrete about debt management, and the Action Plan underscores the need for fiscal policy to be “flexible” and austerity to be “calibrated,” rather vague and uninformative expressions under the circumstances, it is far from clear how all of these goals can be accomplished. Once again, there is the continued danger that fiscal and monetary policies are working at cross purposes or, at the very least, are not in synch with each other.

In the area of monetary policy, the hot-button topic is global spillovers. Yet, the Action Plan simply reiterates what the major central banks are doing and that only “Sound macroeconomic policies, structural reforms and strong prudential frameworks will help address” concerns that have recently emerged from emerging markets. It is notable that enhanced transparency in the area of forward guidance of monetary policy does not appear to show up either in the Action Plan or in the “Leaders’ Declaration,” although the desire for greater transparency in just about everything else makes the cut, especially as Brazil and Indonesia, both G20 members, complained about the lack of clarity in the Fed’s exit strategy. The difficulty is that the days when central banks could follow reasonably simple “rules” about how monetary policy can be calibrated over time in response to inflationary and real economic developments no longer exists. Indeed, we now speak of a “Great Deviation” from such rules. More to the point, all the rule books have been discarded for the time being and, setting aside what one thinks about central bank forward guidance (I am a skeptic), the fact is that there is sufficient uncertainty about the economic outlook that neither the Fed nor the European Central Bank have a clear picture of how quickly or when the tapering of bond purchase or exit from ultra-low interest rates will take place.

In the meantime, the Great Fragmentation I wrote about recently (see:  http://www.cigionline.org/publications/2013/7/great-fragmentation-makings-of-another-crisis-or-opportunity-progress) still sums up the state of cooperation within the G20. Hopefully, next time, there will be no “events” that derail much needed progress in international policy cooperation.

  

Once again, there is the continued danger that fiscal and monetary policies are working at cross purposes.
Thematics
Program
CIGI Experts share commentary and analysis in response to the G20 Leaders' Summit in St. Petersburg, Russia held September 5-6, 2013.