G20
The Divide of One East and Two
Wests
I don't generally get "encore" responses to my
posts, but yesterday's post about the G20 Summit
seems to have come at an exciting time when the
weekend meeting took a constructive direction.
The members pledged to more than double the cash
that the IMF has to lend to distressed
countries. The new target is now at $750 bn.
Holy Frikkin'God! Again, as always, I am
curious to see "how" they propose to raise this
money. Will the IMF sell its gold reserves, issue
bonds and create standard drawing rights (whatever
that means!) as is being suggested or will
member countries donate money.
The former option seems favorable given that countries are already struggling to muddle through this crisis, but the latter in all likelihood is more probable seeing as Japan and the US have already pledged $100bn each.
I wonder what all this means in terms of reforms to the policy changes being made to the IMF. Will the governments that are pledging money have a greater say in these multi-lateral institutions than they did before? Like China, Russia, Middle East and wait... India! Do they get to decide where and how this money gets funneled or is the IMF still going to be dominated by the US and Western Europe!
We seem to be seeing a power shift in the world, which is happening amidst so much chaos that there is no time to contemplate its impact and react accordingly. It is already anticipated that a large number of big western banks will come under the ownership of these new developing countries. Whatever this means for the future, it certainly can't be helped.
Since yesterday's post, I have been asked to explain why I think the summit might focus on saving europe from itself. (Did I really think I could get away with sounding vague? :-)
This is an exercise I need to do for myself, mostly because I can see that this post is already question-ridden and I know a few people whose thoughts I am very eager to hear.
Over a decade ago, the new EU member states began to import more than they exported, with the expectation that the difference would be financed by capital coming from the richer eurozone countries. But, the thought that seemed justified then soon put them on a deadly debt-ridden path. Now Eastern Europe has plummeted into crisis and is expectedly headed south! As the East defaults on an enormous volume of loans, their collapse is reverberating in Western Europe, with problems in one region compounding the problems in another. Western Europe for instance is expected to be flooded with economic refugees from Eastern countries.
Countries with fixed exchange rates, (many Baltic, Balkan countries and the Soviet Bloc) decided to cut wages and prices rather than devalue their currency, which seems to me like Economic Suicide! Then, real estate crashed in many Western European countries. Not to mention, thousands of job losses due to the shrinking of the financial sector globally. In short, shit hit the fan!
I wonder how countries with falling wages and prices and impaired banks facing budget constraints, will get out of this mad mess. There is this idea that creating a €2 trillion European emergency economic stabilisation fund, funded by the richer eurozone countries will help with the recovery. But, I don't really know what this means. There is also talk about relaxing the monetary policy, which is now controlled by the ECB.
And then there is this thought that Eastern Europe will need to borrow from the IMF, which only seems to me like political suicide, given that the IMF is over-represented by Western Europe, and who knows who else in the future! This can only end badly! I also wonder how Europe will present itself as a unified front given all the wrangling and disagreements over protectionism! At the same time, I find it terribly amusing that all European countries must be lumped together and treated en masse/ en bloc, when each country seems to have very unique problems that need ot be looked at in isolation - like Byelorussia with its authoritarian government, or Ukraine with very weird problems such as its gas dispute with Russia, or Latvia which can't afford to borrow anymore!
I also wonder if the large European banks can really get big bailouts as is the solution proposed for large American banks, given that their liabilities exceed the economic size of their countries' economies! Like Deutsche Bank with liabilities of €2 trillion, which is over 80% of Germany's economy!
And what kind of experience do these Eastern Soviet Bloc countries with unstable currencies have with market economies, and really what kind economies do they have? And if they are manufacturing economies that are highly dependent on exports, how do they cope as the East is in recession and is moving towards protectionism?
And therefore I wonder if the G20 Summit will end up focussing on the unfortunate and very unpleasant disaster that is Europe! But, truth be told, the same can be said about the rest of the world as well!
The former option seems favorable given that countries are already struggling to muddle through this crisis, but the latter in all likelihood is more probable seeing as Japan and the US have already pledged $100bn each.
I wonder what all this means in terms of reforms to the policy changes being made to the IMF. Will the governments that are pledging money have a greater say in these multi-lateral institutions than they did before? Like China, Russia, Middle East and wait... India! Do they get to decide where and how this money gets funneled or is the IMF still going to be dominated by the US and Western Europe!
We seem to be seeing a power shift in the world, which is happening amidst so much chaos that there is no time to contemplate its impact and react accordingly. It is already anticipated that a large number of big western banks will come under the ownership of these new developing countries. Whatever this means for the future, it certainly can't be helped.
Since yesterday's post, I have been asked to explain why I think the summit might focus on saving europe from itself. (Did I really think I could get away with sounding vague? :-)
This is an exercise I need to do for myself, mostly because I can see that this post is already question-ridden and I know a few people whose thoughts I am very eager to hear.
Over a decade ago, the new EU member states began to import more than they exported, with the expectation that the difference would be financed by capital coming from the richer eurozone countries. But, the thought that seemed justified then soon put them on a deadly debt-ridden path. Now Eastern Europe has plummeted into crisis and is expectedly headed south! As the East defaults on an enormous volume of loans, their collapse is reverberating in Western Europe, with problems in one region compounding the problems in another. Western Europe for instance is expected to be flooded with economic refugees from Eastern countries.
Countries with fixed exchange rates, (many Baltic, Balkan countries and the Soviet Bloc) decided to cut wages and prices rather than devalue their currency, which seems to me like Economic Suicide! Then, real estate crashed in many Western European countries. Not to mention, thousands of job losses due to the shrinking of the financial sector globally. In short, shit hit the fan!
I wonder how countries with falling wages and prices and impaired banks facing budget constraints, will get out of this mad mess. There is this idea that creating a €2 trillion European emergency economic stabilisation fund, funded by the richer eurozone countries will help with the recovery. But, I don't really know what this means. There is also talk about relaxing the monetary policy, which is now controlled by the ECB.
And then there is this thought that Eastern Europe will need to borrow from the IMF, which only seems to me like political suicide, given that the IMF is over-represented by Western Europe, and who knows who else in the future! This can only end badly! I also wonder how Europe will present itself as a unified front given all the wrangling and disagreements over protectionism! At the same time, I find it terribly amusing that all European countries must be lumped together and treated en masse/ en bloc, when each country seems to have very unique problems that need ot be looked at in isolation - like Byelorussia with its authoritarian government, or Ukraine with very weird problems such as its gas dispute with Russia, or Latvia which can't afford to borrow anymore!
I also wonder if the large European banks can really get big bailouts as is the solution proposed for large American banks, given that their liabilities exceed the economic size of their countries' economies! Like Deutsche Bank with liabilities of €2 trillion, which is over 80% of Germany's economy!
And what kind of experience do these Eastern Soviet Bloc countries with unstable currencies have with market economies, and really what kind economies do they have? And if they are manufacturing economies that are highly dependent on exports, how do they cope as the East is in recession and is moving towards protectionism?
And therefore I wonder if the G20 Summit will end up focussing on the unfortunate and very unpleasant disaster that is Europe! But, truth be told, the same can be said about the rest of the world as well!
