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G-20 Deal Reached, but Outcome Open to Interpretation

21/02/2011    42

PARIS—Negotiators from the world's leading economies haggled all night over seemingly technical details regarding how to measure global economic imbalances. They eventually produced a 53-word sentence intended to appease all sides—and open to interpretation by all sides.

"It means what it means what it means, just like a rose is a rose is a rose," Christine Lagarde, France's finance minister, told reporters after emerging from the Group of 20 talks.

The agony and near collapse of negotiations—as of noon on Saturday it appeared China's objections had led most sides to throw up their hands—illustrates how difficult and unwieldy the G-20 process has become.

All 20 countries must agree on any technical detail for there to be a deal. If one country walks away, no deal.

The key agreement they came up with on Saturday—one sentence in the four-page "communiqué"—essentially says that exchange rates and fiscal and monetary policies will be taken into consideration when determining whether a country's policies lead to imbalances.

To draft that sentence, officials from the U.S., Canada, France, Germany, China, Russia, Indonesia, Brazil and India were just some of the members who weighed in—at times with much different views—according to several people present. The sentence had one colon, one semi-colon, three commas, and the word "and" appeared six times. And officials acknowledged that it could create as much confusion as it does attention.

"Nobody is completely satisfied, everybody is a little dissatisfied, so that must mean there was a compromise," said Dmitry Pankin, Russia's deputy finance minister.

U.K. Chancellor of the Exchequer George Osborne said the talks were "not the easiest of negotiations…but we got to the right endpoint and that's what counts."

The G-20 was credited with helping arrest the financial crisis, in part because leaders from the world's top economies agreed to attack the crisis jointly. But countries are now emerging from the crisis with much different levels of growth. Emerging markets like China and Brazil are growing much faster than Europe and Japan. The U.S. appears somewhere in between.

As countries move in different directions, the G-20 is being pulled in different directions. The process relies more on peer pressure than brute force, but countries become defensive when it appears their policies could become isolated.

Strain was evident at a G-20 meeting in Korea last November, with one official saying private talks became so intense that the door had to be opened so they could get "oxygen."

Talks in Paris were described by some as diplomatic but others as "heated," "draining," and at "loggerheads."

"These things are inherently things that are difficult to solve bilaterally," Treasury Secretary Timothy Geithner said at a separate press conference.

"Obviously they can't be solved by countries alone…and it's much better to try to bring a broad group of countries together."

Many finance ministers say the pronounced disparity in growth is contributing to an imbalance in the way money flows around the world. During her press conference, Ms. Lagarde said it could lead to the next financial crisis.

Several countries believe the imbalance is exacerbated because China allegedly presses down the value of its currency, the yuan. The U.S. and other countries want the value of the yuan to appreciate more rapidly. China says it has the right to conduct its monetary policy as it sees fit.

Amid the controversy, the G-20 discussion on Saturday focused on measurements, or indicators, that can be used to determine imbalances. Going into the meeting, several countries wanted exchange rates included as an indicator.

Again and again during the closed-door meetings, China said no. Just before the deal was reached, officials from three different countries said talks had collapsed and perhaps everyone would regroup in Washington in two months.

Ultimately, officials from France and a number of other countries convinced China to agree to a deal if the wording was altered significantly.

The result was the convoluted 53-word sentence, which says exchange rates and fiscal and monetary policies will be taken into "due consideration" as part of a broader measurement when determining whether a country's policies lead to imbalances.

"The way it's written, the French can say it's an indicator and the Chinese can say it's not really," said one G-20 official after the meetings.

Officials expect much more agonizing negotiations in several months when they debate how to actually measure when an exchange rate is being manipulated.

Perhaps most controversial will be when they discuss what they will do if they find a country's policies are out of bounds. The International Monetary Fund is expected to play a role in how countries are examined for compliance, though it's unclear how much power the IMF will have.

All these things will have to be decided at later meetings, which will once again likely stretch into early morning hours with officials from 20 countries crowded in a room haggling over details.

"You know what, I take things one day at a time," Ms. Lagarde said. "If it is difficult, it will be difficult."

Feb 19th, 2011

By: Damian Paletta

Source: The Wall Street Journal

 

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