Davos Divines `Shared Norms' as Reality Turns Grim on Sarkozy's Influence
French President Nicolas Sarkozy
Lionel Bonaventure/AFP/Getty Images
French President Nicolas Sarkozy.
French President Nicolas Sarkozy. Photographer: Lionel Bonaventure/AFP/Getty Images
Jan. 25 (Bloomberg) -- Klaus Schwab, founder of the World Economic Forum, talks about the agenda for this year's meeting at the Swiss ski resort of Davos. He speaks with Blommberg's Ryan Chilcote in Davos. (Source: Bloomberg)
The global elite is failing to find the “shared norms in the new reality” preached by the World Economic Forum as lopsided growth and income inequalities split the international economy.
Delegates at the Swiss ski-resort of Davos identified rising food prices, North African unrest and competing remedies for an uneven global recovery as evidence of increased discord.
Such flashpoints tempered optimism about the strengthening global expansion and are pressuring policy makers to unite and show they can narrow the social and economic disparities before they derail prosperity.
“The world is at a crossroads,” said Wei Jiafu, chairman of China Cosco Holdings Co., the nation’s largest shipping line. “If we get it wrong, we’ll damage our economic future.”
The International Monetary Fund this week raised its forecast for global growth to 4.4 percent, more than the 4.2 percent expected in October. Developing nations will expand 6.5 percent, more than twice the 2.5 percent in the advanced economies.
Sarkozy’s Efforts
Seeking to narrow the differences is French President Nicolas Sarkozy, chair of the Group-of-20 and G-8 nations this year, who speaks in Davos at 11 a.m. local time.
“It is impossible to even begin to find solutions if we don’t try to find a shared diagnostic among our partners,” he told reporters in Paris on Jan. 24. “The new world is above all marked by an extraordinary change in the equilibrium among the world’s economic powers.”
That may be easier said than done. Even among the developed economies there are clashes over what monetary and fiscal policies are needed to deliver growth with the U.S. backing continued stimulus as Europe tries to retrench.
Both approaches have their challenges and critics. While U.S. President Barack Obama this week detailed about $500 billion in fresh savings to cut a $1.2 trillion budget deficit he called “not sustainable,” business leaders such as WPP Plc Chief Executive Officer Martin Sorrell said he must cut faster.
Hours later, Prime Minister David Cameron was told by billionaire investor George Soros that his plan to eliminate the U.K. budget deficit is “unsustainable.” The government will have to re-think its cutbacks or risk a recession after Europe’s second-biggest economy unexpectedly contracted 0.5 percent in the fourth quarter, Soros said.
Debt Crisis
While European governments are committed to austerity, there are splits on how to fix the debt crisis that has battered the euro region for the past year. Germany, the region’s biggest economy, has resisted more aid for so-called peripheral economies like Greece, which New York University economist Nouriel Roubini said was effectively bankrupt.
European Central Bank President Jean-Claude Trichet, another Davos speaker, this month raised his rhetoric against inflation and told Bloomberg Television yesterday that the ECB would do what’s needed to contain price pressure. Ben S. Bernanke’s Federal Reserve yesterday maintained plans to buy $600 billion of Treasuries, indicating that improving prospect don’t warrant pulling back on stimulus.
Rates, China
As they try to clamp down on commodity-driven inflation, policy makers in the emerging economies that are driving the global rebound are also clashing with rich nations. They are divided over whether the easy monetary policy in the U.S. and Europe is flooding their economies with capital, threatening to inflate asset bubbles. Returning fire, the U.S. is pushing China to recognize its importance in the world by allowing its currency to appreciate further to stimulate domestic demand after allowing the yuan to rise just 3.7 percent against the dollar in the past year.
Behind the policy debate is a “trifurcated” world economy with emerging markets racing ahead, the U.S. beginning to gain ground and Japan and the euro-area still sluggish, said C. Fred Bergsten, director of the Washington-based Peterson Institute for International Economics.
“There’s a very differentiated global construct right now and it’s very difficult to have policy coordination” said Bergsten in Davos.
Those differences extend to society and how it should be managed, said William Browder, chief executive officer of Hermitage Capital Management in London, once the largest foreign owner of Russian stocks before he was barred from the country in 2005. That was evident last week in Washington when Chinese President Hu Jintao met U.S. lawmakers, who pressed him on human rights as well as trade, currency, intellectual property and other issues.
Free Speech
Browder says that China, Russia and some Middle Eastern countries don’t share the same cultural values and legal regimes that underpin European and U.S. society.
“The norms if anything are diverging and won’t recover until the U.S. returns as an economic superpower,” he said.
Leaders are also grappling with how to prevent surging food and energy costs from choking growth in emerging markets and spreading popular unrest and violence. Thousands of Egyptians challenging President Hosni Mubarak this week and clashed with police, inspired by the revolt that toppled Tunisia’s President Zine El Abidine Ben Ali. Protests have erupted in other Arab nations including Algeria, Morocco and Yemen, which all face high unemployment and rising living costs.
“We cannot let the income disparities increase further,” Zhu Min, a special adviser at the International Monetary Fund and former Chinese central banker. “The crisis gave us a break, but I don’t think the world paid enough attention to this issue.”
To contact the reporter on this story: Simon Kennedy in Davos, Switzerland at skennedy4@bloomberg.net
To contact the editor responsible for this story: John Fraher in Davos at jfraher@bloomberg.net
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