The G-20's tough task in Seoul
The world's economic powers are pursuing what was once called the Sinatra Doctrine: doing it their way, despite paying lip service to coordinated action to bolster a stuttering global recovery. Financial unilateralism is erupting along a broad front, dimming the promise that meaningful action will emerge from the Group of 20 summit in Seoul next month.
European governments preach austerity while in the United States, the Federal Reserve talks up "quantitative easing," a disguised, feeble stimulus plan that will accomplish little beyond devaluing the dollar and roiling international currency markets. China and Germany pile up huge trade surpluses in the face of American appeals to bring down global imbalances.
We are not yet back to the beggar-thy-neighbor policies that intensified the Great Depression. But a "self-insuring" instinct is spreading across a world awash in banking recklessness, corrupted housing and mortgage markets, and galloping sovereign debt.
Pretending otherwise at Seoul would be folly. The G-20 leaders should not embarrass themselves as did their finance ministers last weekend by at first vaguely committing themselves to reduce trade imbalances before the big exporting nations torpedoed a U.S. proposal for binding limits on current account surpluses and deficits.
I first heard a description of the self-insuring reflex from Mohamed el-Erian, the brainy investment manager who delivered early repeated warnings of our current financial disasters. In a recent talk at the Petersen Institute in Washington, el-Erian noted that U.S. households are paying down debt, big businesses everywhere are hoarding cash and surplus-rich countries are amassing ever bigger mountains of foreign reserves for the same, understandable reason: All feel self-protection is the only policy that makes sense in a fragile economic environment.
The term echoed in my ears as I listened to European and Asian officials, at the World Policy Conference in Marrakesh this month, explain why they could not or would not revalue their currency (see: China), stimulate their economies to import more from their trading partners (see: Germany) or undertake significant reform of international financial institutions in Seoul next month (see, well, everybody).
Governments perceive limited room to maneuver, a reality that was cast into sharp relief by an exchange I had in Morocco with Jean-Claude Trichet, the imaginative and skilled president of the European Central Bank.
Trichet offered this startling but seemingly well-founded estimate: Bailouts for the world's banks, corporate entities and bankrupted governments mounted by the U.S. Treasury, the European Union, the International Monetary Fund and other institutions since 2008 amount to 25 percent of the global production of all goods and services. One dollar in every four earned by all the world's workers and businesses this year has been committed, if not already paid out, essentially to keep the world from spiraling into a depression.
"I emphasize to every banker I meet that this will not be done twice," Trichet said. When I asked him if he had evidence that the bankers understand this, he quickly responded that what they thought was beside the point: "I am saying democratic governments cannot do this again." They lack the resources as well as the will.
The discussions in Marrakesh, organized by the French think tank IFRI, suggest that the deep costs - and social consequences - of a decade of global financial excess (and the uneven rescue effort it spawned) are sinking in more thoroughly for governments and citizens alike. The reassurances from political leaders that they can put things back the way they were if given power and time wear thin as it becomes increasingly clear that the middle class in most countries faces a lowering of living standards for years to come.
It is time for governments to prepare their citizens for hard choices and hard times. And the G-20 should be the right forum to coordinate the targeted new stimulus spending, increased surveillance of financial markets, budgetary discipline and gradual currency adjustments that are needed.
Proposed two years ago by French President Nicolas Sarkozy, the G-20 started well. It brought emerging economic powers such as China, Brazil and Turkey into a decision-making club that was intended to have more international legitimacy than the G-8 and be more efficient than the United Nations. The Obama administration offered initial strong support.
That enthusiasm has waned as Sarkozy, the group's next chairman, has promised to work for new controls on agricultural and other commodity trade and to overhaul the international monetary system, moves that some U.S. officials view as essential to Sarkozy's 2012 reelection campaign in France. South Korea has, meanwhile, worked hard to keep the beneath-the-surface conflicts submerged at what it intends to present as a harmonious meeting.
Harmony is normally much desired. But purchasing it by putting off decisions that need to be explained to and accepted by anxious electorates is bad policy, bad ethics and eventually bad politics. Governments that engage in happy talk at such meetings wind up fooling only themselves.
The writer is a contributing editor to The Post. His e-mail address is email@example.com.