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The G-20's Triumph and Tragedy

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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At its meeting in Australia over the weekend, the Group of 20 developed and developing nations demonstrated that they understand what is ailing the global economy: It desperately needs the world's governments to work together in several areas simultaneously to remove obstacles to growth. Unfortunately, there's little chance they will turn understanding into action anytime soon.

Ahead of the meeting, the International Monetary Fund offered a sobering outlook. The IMF's economists -- rightly -- lowered their projections for global growth, warned about mounting excesses in financial markets and stressed that central banks can't solve the world's economic problems on their own.

The G-20 responded with an unusually forceful and frank communique, in which its members pledged to "use all macroeconomic levers -- monetary, fiscal and structural policies -- to meet this challenge." Among other things, they promised greater government investment in infrastructure, more flexible fiscal policy, simpler tax systems and freer labor markets. All told, as the Australian chair noted, some 80 percent of the promised measures are new.

The comprehensive vision and actionable agenda take the G-20 closer to its heyday -- the London Summit of April 2009, during which officials agreed on measures that helped avert a multiyear global depression. Yet it is unlikely to repeat its success, because domestic politics are not conducive to action.

In the U.S., sensible economic policy making is hampered by a polarized and largely dysfunctional Congress. The members of the European Union still have fundamentally opposing views on what is needed to fix the common currency and put the region on a sounder economic footing. Japan, Brazil, India and Russia all have specific problems that prevent them from focusing on much-needed structural reforms.

Without action by individual countries, the global economy won't get the critical mass of pro-growth measures it needs. Having failed to deliver fully on their individual commitments, few countries will be in a position to hold others accountable. And the multilateral institutions are unable to be effective global enforcers.

The G-20 deserves credit for delivering a more realistic assessment of the global economy and what needs to be done. The next piece of good news will have to wait for better domestic politics.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mohamed Aly El-Erian at melerian@bloomberg.net

To contact the editor on this story:
Mark Whitehouse at mwhitehouse1@bloomberg.net