Brussels, 21/02/2011 (Agence Europe) - Meeting in Paris on Saturday, the finance ministers of the G20 agreed on economic indicators to keep global imbalances under control, but declined to set binding objectives to reduce them, preferring, in spite of opposition from China, to recommend simple “guidelines” instead, according to their final press release. They also took position in favour of flexible exchange rates and described recovery as solid, but not uniform.
The conclusions of the G20, the first meeting of this year of the Economy Ministers of the group, under French chairmanship, will be examined attentively at Brussels, at the European Commission, and in Frankfurt, at the European Central Bank, ahead of negotiations and two Summits scheduled for March, aiming to strengthen the euro against the impact of the crisis and speculation and better to ensure the stability of the European economies, whilst giving a shot in the arm to economic recovery.
All of this took place against the backdrop of tension in North Africa and the Arab world, which has disturbed the markets and caused the European indicators to fall: those who took the floor expressed concerns that the increase in oil prices, due to events and uncertainty in the exporter and producer countries, will have a negative impact on economic recovery, whilst the attendant hopes of more democracy have had no immediate financial impact.
The EU was represented at the G20 by the Commissioner for Economic and Monetary Affairs, Olli Rehn, and the Hungarian finance minister György Matolcsy, who defended the position adopted last week at the Ecofin Council of 15 February. They supported a two-stage approach to identifying macro-economic imbalance, using a limited list of indicators, and determining the underlying causes of these imbalances, using an in-depth analysis, to be carried out by the IMF.
In a press release published in Paris on Saturday evening, the richest economies on the planet said they had agreed on “indicative guidelines” to be defined ahead of their next meeting in April, to assess the economic policies of the various states, on the basis of a well-established list of indicators: “Our aim is to agree, before our next meeting in April, on indicative guidelines to evaluate each of these indicators, whilst recognising the need to take account of national or regional situations”. These guidelines, however, do not constitute objectives to be achieved, the press release continues. Nor do the conclusions of the G20 include specific limits as regards the indicators, even though this is one of the objectives championed by the French presidency.
The economic performance indicators, designed to measure major global imbalances and set following a compromise with China, are as follows, according to a summary by AFP:
- two indicators to measure internal imbalances: deficit and public debt on the one hand, private savings and indebtedness on the other. The public deficit refers to the negative balance between public sector expenditure (state, local authorities and social security) and its revenue. In order to plug this, the state must borrow and, therefore, get into debt. In relation to GDP (gross domestic product), the indicator measures the proportion in which it weighs on the national economy. It is one of the essential criteria of the stability pact between the countries of Eurozone, which are supposed to keep this deficit below 3% of their GDP, but due to the crisis, this obligation has been suspended for the time being.
Public debt measures the total of loans taken out by the public sector. Private savings is the sum total of savings amassed by households and businesses, as opposed to the savings of public administrations. When domestic savings are not enough to carry out the investments needed, a country appeals to external savings, which brings about a deficit of the current account of the balance of payments. Private indebtedness is the sum total of borrowing by the households and businesses of a country.
- an indicator to measure external imbalances: it is the trade balance, net flows of revenue from investment and transfers, which constitutes the balance of current transactions, “taking full account of the exchange rate and budgetary, monetary or other policies”. The balance of current transactions accounts for trade in goods (trade balance), services and investment revenue (dividends, interest) and revenue from cross-border workers, transfers of funds from workers and transfers to or from international organisations. The trade balance, which takes account of the trade in goods and services with foreign countries (imports and exports), is a component of this.
The list does not include currency reserves, one of the most controversial measures. China, with its 2,700 billion dollars of reserves, opposed this, as did Russia and Brazil. The effective exchange rate is also not on the list of indicators as such, as Beijing called for. (Gp/transl.fl)