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G-20 Nations Wonder: How Soon Is Too Soon to Cut Spending?

August 7th, 2010 at 07:50am Under Economy Report+ VOA

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This is the VOA Special English Economics Report.

This weekend, leaders and top finance officials from the world’s twenty biggest economies gather in Toronto, Canada. One of the big issues to discuss is how and when to reduce deficits and economic growth measures as conditions improve.

Chancellor Angela Merkel is defending Germany’s decision to cut spending by one hundred billion dollars over four years. But some experts say the world economy is still too weak for Europe’s biggest country to reduce spending.

Earlier this year, Germany was slow to react to the Greek debt crisis. European countries later had to agree to a nearly one trillion dollar rescue for the euro area.

Other countries including Britain, France and Japan have also announced cuts. But American Treasury Secretary Tim Geithner says: “Without growth now, deficits will rise further and undermine future growth.”

Economists also point out that spending cuts alone do not solve the problems of countries with structural economic problems.

G-20 nations are also struggling with financial reform issues. These include new rules for risky financial products and closer supervision of banks.

This week, Britain’s finance minister announced a new tax on big banks. Germany and France are considering similar measures to pay for future financial problems. President Obama proposed the idea for the United States in January. But how many countries will join Britain is not clear.

Nineteen countries and the European Union form the Group of 20, including developing economies like Brazil, China, India and Russia. Economist Sebastian Mallaby at the Council on Foreign Relations says G-20 nations should work together on financial reforms.

SEBASTIAN MALLABY: “Financial institutions are cross-border, they are multi-national, they are global. So you ought to have global rules to try and deal with them. But that is not the way the Congress is dealing with them in the United States, and that is not the way I expect European regulators will go either.”

G-20 nations also face the issue of trade imbalances, like the one between the United States and China. As recently as last week China said it would not discuss the dispute over its currency at the Toronto summit. But last Saturday China announced it will slowly let the value of the yuan rise. This week, it reached its highest exchange rate in two years.

China’s export prices may rise, but an American diplomat said the action “takes an irritant off the table in the U.S.-China relationship.”

And that’s the VOA Special English Economics report, written by Mario Ritter and with reporting by Jim Randle. For news from the G-20 summit, go to voaspecialenglish.com. I’m Steve Ember.

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Rebalancing the World Economy

February 2nd, 2010 at 08:38am Under Economy Report

This is the VOA Special English Economics Report.

Last week’s meeting in Pittsburgh, Pennsylvania, was the third Group of 20 summit in less than a year. Leaders of the major developed and developing economies discussed ways to fix the world financial system.

In April they had agreed to do everything necessary to prevent a collapse. This time they noted their success, but warned that the “process of recovery and repair remains incomplete.”

German Finance Minister Peer Steinbruk, left, and U.S. Treasury Secretary Timothy Geithner at the G20 meeting

The presidents and prime ministers launched what they called a Framework for Strong, Sustainable and Balanced Growth. At the same time, they agreed to make the G20 the main group — the “premier forum” — to guide international economic cooperation.

For years that has been a job for the Group of 8: Britain, Canada, France, Germany, Italy, Japan, Russia and the United States. But the G8 leaves out developing nations with big populations and growing economies like China, India and Brazil.

In Pittsburgh, rich nations agreed to also give up some of their representation in the International Monetary Fund. And they called for more voting power for developing nations in the World Bank.

Ghiyath Nakshbendi is a professor of international business at American University in Washington. He says the decision to cooperate on economic policy is important given how much Gross Domestic Product the G20 represents.

GHIYATH NAKSHBENDI: “They are going to work together in order to achieve the goals of the world — that really, when you talk about the G20, you are talking about nineteen countries plus the E.U. that produce ninety-five percent of the G.D.P. in the world.”

Martin Edwards is an assistant professor at Seton Hall University in New Jersey who has written about the I.M.F. He says increasing the influence of developing nations will increase the standing of the fund and the World Bank. But he notes that having more players at the table could also mean more disputes.

In terms of financial reforms, experts say there is widespread support for some proposals to control risks. But others are unpopular in America and Britain. These include linking the pay of bankers to their bank’s long-term performance.

G20 leaders plan to meet next in Canada in June and in South Korea next November. They face many hard choices in the coming months. Professor Nakshbendi says the biggest question is to what extent are they willing to follow their own advice.

And that’s the VOA Special English Economics Report, written by Mario Ritter. I’m Steve Ember.

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