“Obama’s Economic View Is Rejected on World Stage,” the New York Times declared on its front page. The Financial Times’ headline was “G-20 Shuns U.S. on Trade and Currencies,” while the Wall Street Journal proclaimed “U.S. Gets Rebuffed at Divided Summit.” In short, the media’s reporting on the Group of 20 summit in Seoul was brutal.
The meeting of government leaders was certainly a disappointment for those looking for coordinated policy actions to place the world economy on a more secure path to high growth, job creation and financial stability. It also highlighted the growing leadership vacuum at the center of the global system.
The focus now shifts to what comes next. Will the summit be a catalyst for more constructive discussions outside the spotlights and beyond the attention of the world media? Or will it seriously undermine a G-20 process that was successful in avoiding a global depression but has since failed to ensure a lasting economic recovery?
Absent some appropriate changes in mindset and behavior, the latter interpretation may well prevail for three reasons that may seem counterintuitive to some.
First, the summit played down disagreements by producing a statement that has something for everyone. This attempt at short-term expediency can easily backfire. After all, it is hard for China, Germany, the U.S. and others to make a solid case at home for compromises to meet global responsibilities when opponents can quote reassuring sections from the communique.
On the Defensive
Second, what should have been a collective discussion on global rebalancing veered too much in a direction that placed the U.S. on the defensive. And attempts at unilateralism by the U.S. before the summit -- through policy actions and widely circulated letters, which I suspect were meant to encourage others to fall in line behind American leadership -- served only to display an unusual degree of isolation and foster even more questioning of the world’s biggest economy.
Third, with France set to assume the G-20 leadership, the summit opens the door wide for a government that is naturally inclined to greater intervention. In the past, this has tended to irritate the U.S. in terms of both content and process.
French leadership of the G-20 also comes at a time when President Nicolas Sarkozy’s government is eager to secure visible quick wins on the global stage. It is under political pressure at home on account of budget austerity, and it also faces regional tensions due to the expanding debt crisis in the peripheral economies of the euro area.
This rather downcast analysis of what possibly comes next should ring alarm bells in Washington and in other capitals. It is a call for intensifying international economic diplomacy with a view, first and foremost, to reaching rapid convergence on a common analysis of what ails the global economy. Without that, any other step can’t be productive.
Global economic cooperation has been weakened by a disappointing G-20 summit. But coordination is still the only way to secure the collaborative outcome that is so critical for the wellbeing of so many around the world.
“Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions,” the G-20 statement said, adding that “uncoordinated policy actions will only lead to worse outcomes for all.”
Without common analysis and purpose, we will all find that a rather bland G-20 statement will, unfortunately, become very prescient.
(Mohamed A. El-Erian is Pimco’s chief executive officer and co-chief investment officer, and the author of the book “When Markets Collide.” The opinions expressed are his own.)
To contact the author of this column: Mohamed A. El-Erian at Mohamed.El-Erian@pimco.com
To contact the editor responsible for this column: James Greiff at firstname.lastname@example.org