The G-20 is the organization that brings together the 20 largest economies in the world and theoretically allows them to coordinate their efforts to have an impact on the global economy. It often doesn’t quite work out that way as these states are not all that similar to one another in terms of the domestic economic issues they face, and there are deep differences as far as policy is concerned.
The members of the G-20 include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, Great Britain, the U.S. and the EU as a whole. Just a cursory look at this list is enough to prove the point. These states are in various stages of development, and some are facing imminent crisis. It would be hard to find a way to get all these leaders to agree on what day it is much less on some grand economic plan.
The great divide as far as the G-20 is concerned is whether or not austerity is still a viable option. Once upon a time, there was pretty solid support for getting budgets in order and reducing the impact of debt and deficit. The majority of the European states, the U.S., Japan and Canada all seemed thoroughly on board with the notion. Today, there is really only Germany as the true believer. The U.S. has been pressuring the Germans to loosen up and start spending as the U.S. has also stepped up its spending. The British under Cameron were committed to austerity and debt reduction, but the Brexit stunner has made it clear the public is not supportive. The new May government is already showing signs of weakening that commitment. The Canadians made it clear they were ready to start spending and running a deficit as they try to cope with the decline in commodity revenue.
The official position of the G-20 is that austerity be scrapped or at the very least be placed on the back burner for now. The desire is for growth. This means dipping into the debt markets more aggressively. To some degree the timing is good for this as rates on loans are historically low. If ever there was a moment for the governments of the world to sell bonds as a means by which to raise funds, this would be it. The yields are impossibly low, and there are even those that are buying bonds with negative yields as at least these are seen as secure.
On the other hand, the debt and deficit issues that so preoccupied people a few years ago are now of seemingly less concern despite the fact these debts are higher than ever for many countries. For all of the talk, there has been precious little progress. Now it would appear that caution will be thrown to the wind in an attempt to bolster the economies of these countries. This is where the other big question comes in—what exactly should these states do to get growth started again? There are as many opinions as there are countries. Some are pushing infrastructure, others are counting on exports and others focused on making more jobs. The majority of the members of the G-20 need the U.S. to get its economic affairs in order so that it can buy more of their output, but at the same time most of these states have been sliding fast into more protectionist positions and the U.S. is at the top of that list.
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence