I thought that when the Group of 20 circus of finance ministers and central banker reached Russia on Feb. 15-16, it would presage six months of bizarre performances culminating in September with the grandest summit on earth in St. Petersburg. Given that Russia excels at circuses and that President Vladimir Putin is something of a showman in chief, it should have promised to be an exciting time.
But judging by the opening performance, the meeting of the finance ministers and central bank governors in Moscow, it threatens to be a total waste of time and money. Their six-page, 26-paragraph communique was full of woolly woffle. It claimed that “Thanks to the important policy actions in Europe, the U.S. and Japan, and the resilience of the Chinese economy, tail risks to the global economy have receded and financial market conditions have improved.”
So bravo, then, our brave “Leaders” (who are always graced with a capital letter)? Not quite because the same self-congratulatory paragraph continued by admitting that hosts of risks remain, notably weak global growth and high unemployment: “The weak global performance derives from policy uncertainty, private deleveraging, fiscal drag, and impaired credit intermediation, as well as incomplete rebalancing of global demand.”
The finance chiefs called for a stronger economic union in the euro area, action to “resolve uncertainties related to the fiscal situation in the United States and Japan,” and boosting of domestic growth in surplus countries. They promised to build a more resilient financial system and promote “ambitious structural reforms to lift growth” and “ensure sustainable public finances.”
But instead of offering an action plan or a detailed road map to achieve these reforms, the communique deteriorated into a laundry list of pious wishes, promising assessments, reaffirming commitments, recognizing roles, welcoming progress and generally reshuffling old deckchairs.
The plight of the global environment featured in paragraph 26: “We will voluntarily self-report this year on our efforts to incorporate green growth and sustainable development policies into our structural reform agendas … develop methodological recommendations for and undertake a voluntary peer review process for such fossil fuel subsidies …”
Meanwhile use of fossil fuels is contributing to unhealthy air and inexorably warming the Earth to unbearable temperatures with weird and not very wonderful changes in climate patterns.
One example of the failure of the G-20 Moscow meeting is its reaffirmation of “the urgent need” to ratify changes in the quotas and governance reform of the International Monetary Fund. These were agreed back in 2010. What’s holding things up? Who is dragging their feet stopping China, India and other developing countries from having a bigger say in global governance? What action will be taken? The communiqué is silent except for “attaching high importance to securing continued progress in meeting these objectives.” Do taxpayers have to pay for leaders to waste time like this?
Faced with such turgid gobbledygook, reporters had a hard time finding an interesting topic. Many lighted on the promise not to fight currency wars. “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open.”
This was the green light for Japan’s Abenomics to continue, and sure enough the yen weakened again to 94 to the dollar, heading to 100, from record highs of 75 a few months ago. It remains to be seen whether the policy will boost Japan’s exports and lift the economy.
The BBC, no doubt prompted by closeness to U.K. Finance Minister George Osborne, highlighted the promise to crack down on tax avoidance by multinational companies which use multiple financial wheezes to shift profits from places where they will be taxed heavily. Starbucks, Amazon and Apple are among companies that have big revenues in the United Kingdom but pay little or no taxes.
France and Germany joined the U.K. in deploring the practice, but the U.S. was noticeably silent. Altogether, big U.S. corporations are holding $1.7 trillion in reserves offshore unwilling to repatriate it and face higher tax rates at home. You might think that the cash-strapped U.S. Treasury might join in the crusade for fair payment of taxes, but President Barack Obama is clearly unhappy to open another front in his battle with Republicans over corporate taxation.
The problem is that the schemes they deplore are legal tax avoidance measures rather than illegal tax evasion. The Organization for Economic Cooperation and Development, the club of rich nations, reported this year that some multinationals use strategies that allow them to pay as little as 5 percent in taxes when smaller companies pay 30 percent.
The OECD report had a catchy abbreviation — BEPS, standing for its full title, “Addressing Base Erosion and Profit Shifting”. Whoever dreamed up that soporific title is clearly angling for a job in the G-20.
The G-20 communique showed a proliferation of alphabet soup. Yes, we have all heard of the U.N., IMF, OPEC, UNCTAD and OECD, and perhaps even BIS, FSB, MDBs, IMFC, none of which was spelled out in the document. As if to demonstrate how the bureaucrats live in a world of their own, the communique also mentioned without explaining them or spelling them out: PPPs, IASB, FASB, IOSCO, CGAP, EMDEs, FATF, OECD/INFE, FinCoNet, IEA, IEF, PRAs, JODI-Oil and JODI-gas, and UNFCCC.
But the G-20 added a few more items of alphabet gobbledygook, where they did spell out the abbreviation. Try IO, NDBs, LCBMs, RFAs, LEI, AML/CFT, GPFI, FISF. This last lot stands for international organizations, national development banks, local currency bond markets … but is anyone still awake? With all these capital letters cluttering their overtaxed brains it is no wonder that the G-20 is going nowhere slowly when the world needs internationally-minded Leadership to tackle big problems.
The world’s woes include: slow economic growth and high government debt and deficit in most developed countries, which is helping to spread high unemployment globally; a fragile financial system; political uncertainty everywhere from Europe to the Middle East to the China seas; spluttering political violence and threats of terrorism; looming environmental crises that could turn into catastrophic damage to air, water and food supplies.
The old developed countries, which previously ruled the world, have yet to understand their need for far-reaching economic and societal changes. How can they continue to live like princes, protected by health and welfare systems that their countries’ battered budgets cannot afford if their people are less flexible, less productive and less educated than the populations of up and coming countries?
Just before he left the International Monetary Fund in disgrace, the perceptive Dominique Strauss-Kahn admitted that the 2008 financial crisis also “devastated the intellectual foundations of the global economic order of the last quarter century.” He acidly described the Washington consensus as a “number of basic mantras. Deregulation and privatization would unleash growth and prosperity. Financial markets would channel resources to the most productive areas and police themselves effectively. And the rising tide of globalization would lift all boats. This all came down with the crashing crisis.”
There is a vacuum, which the G-20 is signally failing to fulfil. Without a better attitude of give and take and some far-seeing Leader who appreciates that a global view is necessary, not merely national strength, the G-20 will continue to be a glittering expensive circus, tickets available only to the rich and famous.
Kevin Rafferty is the editor in chief of Plainwords Media.