Leading policymakers expressed concern on Friday about the health of the world economy even as they closed ranks behind the eurozone’s efforts to tackle a debt crisis that has rattled global markets.
Speaking before two days of talks bringing together the world’s top 20 developed and emerging economies, South African Planning Minister Trevor Manuel said he could not think of a more challenging time than the present for the Group of 20.
The meeting of G20 finance ministers and central bank governors was an opportunity to take decisions to banish the spectre of a double-dip recession, Manuel said.
“It’s important that we all understand just how fragile the recovery is,” he told reporters.
Police boats patrolled near the beach hotel in Busan where the meetings are taking place. Authorities have stepped up security in the city in the face of the some of the most war-like rhetoric on the divided peninsula after the South accused North Korea of sinking one of its warships.
As well as a €110-billion bailout for Greece, the 16-member eurozone is slinging a financial safety net under other heavily indebted countries that use the single currency.
Together with money from the International Monetary Fund, the support could total €750-billion.
Investors first responded enthusiastically to the rescue package, but the euro has since slumped on concern that about the ability not only of Greece, but also countries such as Portugal and Spain, to plug holes in their budgets.
“First, I don’t think the Greece problem is over yet. We are not out of the woods,” Youssef Boutros-Ghali, Egypt’s finance minister, told Reuters.
“Second, I don’t think they got off lightly. The measures they have been required to implement are fairly tough. And there are in some areas doubts whether they are able to continue implementing such tough measures,” Boutros-Ghali, who also heads the IMF’s policy-steering committee, said.
World stock markets have also been shaken, fearing that Europe’s woes could deal a new blow to growth.
“Just when we thought we had turned the corner there are clouds on the horizon,” World Bank Managing Director Ngozi Okonjo-Iweala told Reuters.
But speaking en route to Busan, US Treasury Secretary Timothy Geithner expressed confidence that the global economy was strong enough to ride out Europe’s troubles.
“The world economy came into this period of concern about Europe with stronger underlying momentum and growth than many people expected, and we’re in a much stronger position to get through this,” Geithner told CNBC television.
Turning to the other main item on the weekend’s agenda, Geithner said the G20 shared a commitment on the need for common standards across global financial markets that will constrain some of the risk-taking that helped fuel the 2007/08 financial crisis, the worst since the 1930s.
Fierce opposition from Canada, among others, has torpedoed the idea of a global bank levy to pay for any future bailout. Rich-country taxpayers had to fork out trillions of billions of dollars to rescue banks felled by the crisis.
Instead, finance ministers will work on a menu of options for their political leaders to endorse at a summit in Toronto at the end of the month with a view to making more specific commitments at a follow-up summit in Seoul in November.
“Different countries’ banking sectors are in different situations. So there won’t be a one-size-fits-all policy,” Sakong Il, chairperson of the presidential committee for the G20, told reporters.
G20 governments, with the support of the IMF, would assess the spillover effects of each member’s proposed policies, Sakong said.
He acknowledged that this could make big global banks shift some of their business to take advantage of less onerous rules, a concern also expressed by Geithner.
“Risk doesn’t respect national boundaries. It’s going to move to where the constraints are weakest,” he told CNBC.
“We all have an important stake in making sure we have a strong set of consistent standards in place across these global markets, across these global institutions and what we’re going to try to do in Korea is to try to make sure … we’re solidifying that consensus,” Geithner added. — Reuters