Undermined by Divergences, the G20 Summit Ends in Stalemate

The G20, the planet’s most powerful countries (rich or emerging) displayed its inner divergences during the two-day summit in Seoul before adopting a final statement so minimal that it certainly does not amount to so much as a compromise, let alone an agreement.

Real monetary dumping

The 20 did mention the divisive issues, like the manipulation of exchange rates and trade imbalances. These had come up on the eve of the summit following the announcement by the US Federal Reserve of a plan to purchase 600 billion dollars in US Treasury bonds. Which amounts to flooding the planet in green banknotes to hold down the rate of the US currency. This planned monetary dumping provoked sharp criticism especially from big exporting countries, like Germany or China. Other countries like Brazil also virulently voiced their fears that the flood of dollars might turn into a flood of speculative capital ready to position itself on their country’s Treasury bonds (their rates being higher) and so push up the rates of their currencies. While the US itself persisted in accusing Beijing of unfair commercial competition by undervaluing the yuan.

Confronted with this imminent commercial war, the G20 did not even succeed in waving the white flag. More often than not, negotiation was a dialogue of the deaf, so much so that serious measures have simply been postponed. In order to define the reasons for the global imbalances and pinpoint responsibilities, the 20’s finance ministers have been invited to probe into “indicative directives”, the modalities of which are to be “assessed” in the first semester of 2011, at the beginning of the G20’s French presidency.

Nicolas Sarkozy was obviously far more interested in taking advantage of the stature of international one-man band that looms ahead of him than in defending the text adopted in Seoul. He once more declared his ambition “to moralize capitalism”, “to make it more efficient and better regulated”, and pointed out the importance of opening the way to a reform of the international monetary system in the near future. This must be no less than “a Bretton Woods”, he insisted, in reference to the agreement struck after WWII on which, basically, the global monetary order is still founded.

The challenge is more formidable than ever

Unwilling to gloss over the “great difficulties to be surmounted” in order to strike an agreement on the subject, the French president announced that he was to set out on a mission to meet several heads of State, starting with Barack Obama, leadership obliging, “before the end of December”, then the South-African president Jacob Zuma. He promised that Angela Merkel would be associated in all the stages of the reflection and congratulated himself at great length that Beijing had agreed to host a first seminar on those issues in the spring. France will have one year exactly to produce a draft at a summit planned in Cannes in early November, 2011.

Beyond its obvious sensational impact and possible uses on the French political scene, the challenge is effectively more formidable than ever. But instead of the necessary drastic overhaul, the French president has come out in favour of more conventional solutions. At no time does he mention the disorder provoked by the domination of the green currency. He unreservedly supports the IMF reform on which the 20 managed to reach an agreement, even though it extends the US power of veto … He also, like the 20, advocates the completion of the Doha cycle on the liberalization of trade. In short, his plans for reform madly mimic a blind rush along the old familiar track.