G-20 Pits U.S. Growth Against EU Amid Volatility Worry

Global finance chiefs wrestled with competing priorities for the global economy in Moscow today as U.S. growth and its impact on markets took center stage against a backdrop of a European recession.

Europe needs to do more to jumpstart its economy, Treasury Secretary Jacob Lew said as his European Union counterparts prepared to defend their job-boosting efforts. Developing nations at the meeting of Group of 20 finance ministers and central bankers hailed the U.S. upturn, while warning that the Federal Reserve should be careful to avoid spooking markets if it ends its bond-buying program.

Speculation about developed economies scaling back their unprecedented monetary easing has roiled emerging-market currencies and bonds since G-20 finance chiefs last met in April. That prompted policy makers including Fed Chairman Ben S. Bernanke to refine their message.

“I think the crucial challenge is how the financial markets manage these signals and how they manage them in a way in which emerging markets and their currencies are not negatively affected,” South African Finance Minister Pravin Gordhan said in an interview with Bloomberg Television.

Bernanke has now “done enough” to convey that U.S. policy won’t change overnight, giving the rest of the world time to adjust, Gordhan said. The dollar weakened 0.3 percent to 100.27 yen at 3:22 p.m. in Moscow, as investors pared back expectations of how quickly the Fed would begin to scale back asset purchases.

‘Shared Opinion’

G-20 finance chiefs have a “shared opinion” that the global economy needs a common strategy for how to manage quantitative easing efforts, Russian Finance Minister Anton Siluanov told reporters in Moscow today. He said growth rates in emerging economies are weakening, showing that those countries may not be able to propel the world economy forward on their own.

“Emerging markets in central and eastern Europe and elsewhere are right to be concerned given the narrative coming out of Frankfurt, the U.S. and Japan,” said Mujtaba Rahman, director at the Eurasia Group in New York. “Their performance has not been driven by fundamentals, and forthcoming changes to monetary policy are going to make emerging markets look particularly vulnerable.”

Global finance chiefs are counting on the U.S. to carry the recovery as they look for ways to improve prospects in their home economies. Bernanke is “very conscious of the global responsibility of the U.S.,” French Finance Minister Pierre Moscovici told Bloomberg Television today.

Europe Worry

“I think that people are worried about Europe,” Moscovici said, reiterating that the EU will continue its efforts to lift the 17-nation euro region out of recession. His German counterpart told reporters the focus should remain on expanding the workforce.

“High unemployment must be avoided,” Finance Minister Wolfgang Schaeuble told reporters in Moscow.

Europe is the weakest component in a three-speed global economy that includes fast-growing emerging markets and a medium-paced U.S., South Korean Finance Minister Hyun Oh Seok said in an interview yesterday. He said the EU has reduced the risk of a new shock and now needs to pursue structural reforms, noting that the euro area’s crisis-fighting strategies haven’t always been effective.

‘Being Victims’

Markets overreacted to Bernanke’s initial signal that the Fed may start to cut back on its $85 billion in monthly bond purchases, Italian Finance Minister Fabrizio Saccomanni said in an interview today. He said there’s now an understanding that central banks will provide liquidity as long as needed.

“Emerging economies make a lot of being the victims of policies of industrial countries, including the European ones, that push up the value of their currencies,” Saccomanni said. “But you know, one could easily make the counterargument -- assume that we were following very tight policy in a situation like this, I think the spillover on the emerging economy would be even harder.”

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