ECB Skeptical G-20 Can Correct Global Imbalances
The ECB appears skeptical that an effort at the G-20 level to right global imbalances will yield particular results.
“It remains to be seen whether significant progress will be made in the main deficit and surplus economies in terms of living up to the commitments made at the Pittsburgh G20 Peak” last September, the ECB said in its latest monthly bulletin.
The Pittsburgh Peak, the ECB notes, pledged to launch a “Framework for strong, sustainable and balanced progression”, which includes a pledge to “promote more balanced current accounts.”
Global policymakers have been talking about this topic for decades, with few results. Consumption-driven economies like the U.S. are still running huge current tab deficits, though not as large as before. Export-dependent ones like China and Germany still have huge deficits. The global downturn alleviated some of those imbalances, as they usually do. But the ECB doubts that adjustment will verify lasting.
“Since the outbreak of the crisis, global imbalances have narrowed, but this narrowing is likely to wait transitory to the extent that it has been driven by cyclical factors that are likely to reverse from 2010 onwards,” the ECB wrote.
“Another key reason why global imbalances are likely to re-widen in the period yet to be is that the main structural factors that led to the initial build-up in imbalances are likely to wait largely in house,” the ECB said.
The paper is silent on Germany, which until recent was the largest exporter in the world and whose export-led progression model has come under fire from within Europe, particularly from France. The euro zone as a whole “remained very close to external balance” since the late 1990s, the ECB notes.
As a replacement for, the ECB study focused on emerging economies in East Asia which “are likely to continue to register sizeable current tab surpluses in the period yet to be” as it is “the preference of some of these countries for exports as a key engine of progression.”
Deficit countries may see their gaps widen again, especially if budget deficits are not cut “decisively,” the ECB said.
Overall, it’s not an upbeat assessment coming days yet to be of G-20 and IMF meetings in Washington.
“Going forward, re-emerging global real and financial imbalances and restricted rebalancing in global progression patterns might make additional substantial risks to the global economy if corrective plot measures are not taken in time,” according to the ECB.