Status Quo in Toronto

The G-20 Is Unable to Reconcile Obama’s Stimulus with Merkel’s Cuts.

The G-20 summit in Toronto has opted not to delve into the strategic divide between the European view of the crisis (stability and drastic reduction of public deficits) and the economic conception of the Obama administration, which favors maintaining public investment programs and is concerned at the prospect of a sudden withdrawal of public stimulus funds. In Toronto, member countries have been given the freedom to decide whether to implement the bank tax (already imposed by the United States, and which Germany, the U.K. and France wish to implement) and have resorted to a subterfuge to paper over the huge difference of criteria between Europe and the U.S.: fiscal consolidation will occur according to each country’s circumstances. The struggle among the member states to arrive at an agreement that will commit the more developed countries to reduce the public deficit by half by 2013 reveals the fundamental differences between Europe and the U.S.

The legitimacy of the G-20 is indisputable, even more so than the G-8. It is very important that the emerging countries be involved in decisions regarding the financial crisis and that they understand their growing role as engines of the world economy. But one must keep in mind that this is linked to two principal objectives: the recovery of growth and employment and the prevention of future economic crises like this one. To do this in a coordinated fashion among the major world economic players, while clearing up any threat of protectionism, was the minimum condition placed on the table for the first meeting of this group. But in Toronto, the results have not been very encouraging. There has been no sign of the urgently needed coordination of the economic policies of the 20 participants (and not even of the eight developed countries of the G-8).

This, though, is the most pressing problem that the crisis presents. The policy of spending control is necessary, but it must be moderated so that all countries do not shrink their investments and budgets at the same time. Otherwise, it will be impossible for some economies to provide an impetus for those that are most affected by the costs of the recession. In many European countries, Spain among them, there exists the possibility of falling back into recession, and job creation will be delayed inordinately. The G-20 must play the role of coordinator, which it has not accepted so far.

Moreover, the G-20 does not offer any answer to market pressures. The U.S. has embarked on a program of financial reform that is less radical than what Barack Obama wanted, but much more intense than anything that is even being considered in Europe. But market reform, to help control speculative detours that may end in catastrophes like the recent financial crash, is an indispensable counterbalance to the cost-cutting programs that the bond markets are imposing on countries like Spain, Portugal and Ireland.