Leaders arrive for G20 summit, main issues unresolved

Thursday, November 11, 2010

SEOUL - Most of the Group of 20 (G20) leaders had arrived in Seoul by Thursday afternoon for a summit that risked reaching only broad and incomplete agreements on how to eliminate the biggest obstacles to a strong global recovery.

The summit is the first to be held in Asia since the G20 format emerged as the key forum for economic debate in the aftermath of the global financial meltdown of 2008.

The official slogan chosen by South Korea is “Shared Growth Beyond Crisis”. But the hosts’ best intentions have so far been marred by a naming and blaming game that does not bode well for the summit’s outcome.

Moreover, while fears of a new global recession might be receding, there are murmurs of a possible new financial crisis affecting one of the euro area’s weakest members - Ireland.

European Union officials were forced to reassure financial markets shortly after their arrival in Seoul over fresh concerns that Dublin would have to call for an EU bailout because of the country’s record debt levels.

“We are monitoring the situation in Ireland on a permanent basis,” European Commission President Jose Manuel Barroso said. “We have all the necessary instruments in place to act, if necessary.”

Topping the summit’s agenda are exchange rate policies that are pitting the world’s economic heavyweights against each other. The US and the EU accuse China of keeping its currency artificially low in order to make its exports cheaper, while the US Federal Reserve has angered the rest of the world by pumping $600 million into the country’s ailing economy, thus reducing the value of the currency.

The US, which suffers from a huge trade deficit, is also keen to discuss how best to reduce balance of payment imbalances.

President Barack Obama said he was confident that the summit would reach “broad-based agreements”.

However, South Korean officials acknowledged that “on the key issues, we have not yet reached an agreement”.

G20 leaders have already rejected a US proposal to set fixed limits on the size of a country’s trade deficit or surplus.

“I do not believe that mechanical, one-size-fits-all numerical targets are the answer to these challenges,” Barroso said.

Rather, the G20 should draw inspiration from EU plans to use current account imbalances as “a warning indicator” alongside other indicators of economic instability, such as wage evolution and real estate bubbles, said EU Council President Herman Van Rompuy.

Meanwhile, Chinese President Hu Jintao rejected accusations that China was manipulating the yuan, saying the government had kept its currency exchange rate “stable while gradually advancing the reform of the exchange rate formation mechanism”.

“China will do its best to manage its own economy and never blame others for its own problems,” Hu was quoted by the Chinese state media as saying ahead of the summit’s start.

The G20 has nevertheless achieved some progress on how to deal with so-called globally systemically important financial institutions - or banks that are “too big to fail”. But special working groups tasked with identifying such banks were not expected to complete

their work until the middle of next year.

“There is an agreement for a timetable and an approach” on this issue, said Dong-Soo Chin, chairman of the Financial Services Commission.

During Thursday and Friday’s talks, leaders were also expected to endorse a deal reached last month by G20 finance ministers to reform the International Monetary Fund in a way that gives more decision-making weight to emerging powers, such as China and India.

The G20 was preceded by a business summit attended by several world leaders, including German Chancellor Angela Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero.

Merkel was to hold a bilateral with Obama shortly before the summit’s working dinner.

French President Nicolas Sarkozy was not expected in Seoul until Friday.

Filed under: Economy

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