Beer kegs at the ready! The international community is poised to celebrate this weekend when G20 ministers meet in Mexico to flesh out a comprehensive plan to solve the eurozone crisis. Thus setting the stage for a risk-on party for global markets on Monday as investors bow down to the wisdom, efficacy and co-ordination of international policy.
...and wake up. That scenario is for the beer half-full crowd. Instead, expectations for the G20 meeting of finance ministers and central bankers are low, even for G-grouping standards.
At the heart of the issue is whether the eurozone has done enough in creating a financial firewall to combat the impact of a selective Greek default and whether the IMF has the resources and mandate to bail out the eurozone. Via the FT:
| Eurozone finance ministers will face pressure to increase the size of their financial “firewall” as the continent’s sovereign debt crisis dominates discussion at the G20 meeting of finance ministers and central bank governors in Mexico this weekend. Most of the rest of the G20 see such a decision as a prerequisite to agree co-ordinated moves to resolve the crisis, including increased resources for the International Monetary Fund. After the failure of the Cannes G20 summit to agree additional IMF resources last November, the ambition was to secure agreement by this weekend’s meeting. But the deadline has slipped because non-eurozone G20 countries insist the eurozone must first show it is willing to solve its own problems. |
Divisions over IMF role
The US has already signalled it is reluctant to stump up more cash to bailout Europe via the Washington-based policy lender. Meanwhile, the ever-growing Europeanisation of the IMF will make the institution’s balance sheet dangerously exposed to the crisis and trigger the ire of emerging economies at a time when developing nations are seeking to increase their representation on the IMF’s executive board, as PIMCO chief executive Mohammed El-Erian wrote in today’s FT. The fact that the eurozone has the resources – as a net creditor – but lacks the political will and mechanism to solve its debt crisis is a source of much acrimony.
In sum, deep divisions among G20 nations over the IMF’s role in combating the crisis bode ill for this weekend’s meeting. And yet, “only the G20 can put the Fund in the driver’s seat and give it the resources it needs to complete the task [of bailing out the eurozone and stabilising the global economy],” Barry Eichengreen, professor of economics and political science at the University of California, Berkeley, wrote in Emerging Markets in November 2011. And little has changed since then, even with the recent Greek bailout package (of sorts).
In short, expect the G20 communiqué to emphasise measures taken to boost global growth while deferring decisions on a eurozone bailout mechanism. In theory, G20 ministers will also debate issues such as aid, climate change and efforts to resolve global imbalances. But the eurozone crisis has obviously distracted policymakers' attention from these issues.
So see you for more of the same at the next summit of G20 leaders for June 18-19 in Los Cabos, Mexico?
Further reading:
IMF: At the crossroads - Emerging Markets
Europe's Week Ahead: G20 Meeting, Earnings- WSJ
The turn of emerging countries- Bruegel
@Reuters_G20 - Twitter IMF funding boost: over to you, China - Emerging Markets