The quest for economic resilience in uncertain times

By: Mateusz Urban, Economist

G20 Finance Ministers and Central Bank Governors met last week in the spa town of Baden-Baden to discuss the global economy and the challenges it faces. However, they struggled to find consensus on trade and climate-related issues. Could the outcome of this meeting set the tone for the upcoming G-20 Summit in Hamburg this July?

As usual, issues concerning international trade and capital flows prevailed in the communique, a traditional resolution accepted at the end of the symposium. Not surprisingly, financial leaders claimed that even though a recovery was already underway, the pace of economic growth was not entirely satisfactory. As a response, participants called for continued accommodative monetary policies and stressed the importance of flexible and growth-friendly fiscal policy, structural reforms, and greater efforts to balance debt-to-GDP ratios.

But it is what was not included in the communique that was perhaps more telling. Despite the wide common ground (which can be safely judged as “traditional” in light of former communiques), there was some disagreement between the US delegation and other G-20 members. Two issues formed the bone of contention, namely, international trade and climate change.

As far as trade is concerned, the unambiguous commitment to free trade principles in the communique were omitted, a clear mark of the US delegation’s influence and the potential warning sign of a new wave of protectionism making its way up to the body meant to promote the exact opposite. For some, the US refusal to clearly commit itself to free trade was a defeat for host nation Germany, as well as the global economy.

Pledges to fund measures against climate change (first agreed upon in 2015), on the other hand, were dropped entirely following a veto cast by the US delegation (President Trump not sharing his predecessor’s single-minded obsession with climate change), this time supported by Saudi Arabia.

In the words of Germany’s finance Minister Wolfgang Schauble, the Baden-Baden meeting “does not take us a great deal further.” The outcome of the meeting also seems to have created a tremendous amount of uncertainty as to whether or not common ground will be found between all G-20 members on these issues during the upcoming Summit in Hamburg, particularly with Trump’s influence dominating the floor.

Overall, it may seem vital that G20 Finance Ministers and Central Bank Governors agreed on several key measures to take, which, apart from the aforementioned, included regulatory (e.g. final implementation of the Basel III framework) and development (Compact with Africa) programs. However, it is the stark contrast of views on trade and climate change policies that are bound to determine both the public debate and preparations for the July Summit in the months to come.

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