G20 struggles in Seoul as Irish crisis hits market
The Group of 20 meeting on Thursday struggled to agree on meaningful action to rebuild the global economy as a crisis erupted in Ireland, pushing its bond spreads out to a record over Germany, and infecting Spain and Portugal.
Even as U.S. President Barack Obama voiced confidence that the leaders would agree on steps for more balanced and sustainable global growth, financial markets sold vulnerable eurozone bonds and shares of British bank RBS.
At the summit, European Commission President Jose Manuel Barosso said that the European Union had the tools to help Ireland, but did not commit to a fresh course of action that could reassure nervy investors.
"What is important to know is that we have all the essential instruments in place in the European Union and euro zone to act if necessary, but I am not going to make any speculation," he told reporters.
The G20 summit, billed as a forum where rich nations struggling with the recent global financial crisis could ink a new world order with emerging economic powerhouses like India and China, appeared set to agree to little of substance, as policymakers preferred to avoid damaging rows.
"The real issue is given that it is a problem, how do we coordinate policy? I don't think you should be too demanding ... because such policy coordination has never been attempted before," Indian chief G20 negotiator Montek Singh Ahluwalia told Reuters.
Struggling to recapture the unity forged in the throes of the global economic crisis two years ago, the G20 club of rich and emerging economies had hoped to use the summit to soothe tensions over foreign exchange rates generated by imbalances between cash-rich exporting nations and debt-burdened importers.
But behind the scenes, negotiators squabbled over the language in a closing statement to be issued at the summit's conclusion on Friday. The final version may not venture far beyond agreements reached by G20 finance ministers last month, yet it was still proving difficult to agree on the wording.
A major irritant in the run-up to the meeting was the U.S. Federal Reserve's $600 billion bond-buying spree to revive the economy. Former Fed Chairman Alan Greenspan stirred that pot, saying the United States was deliberately weakening the dollar.
"The U.S. will never do that," U.S. Treasury Secretary Timothy Geithner shot back a few hours later in an interview with CNBC. "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy."
Geithner again criticized China's currency policies saying the world's second largest economy risked stoking inflation pressures. China earlier reported that consumer price inflation had hit a 25-month high in October.
Nevertheless, Russia said it was "especially worried by attempts by a number of countries to take unilateral decisions to weaken their currencies" to stimulate growth.
"We believe that such steps lead to nervousness among market players and volatility of main currencies, prompting fears of global currency wars," a source with Russian delegation said.
Obama, speaking after a meeting with South Korean President Lee Myung-bak, said he was confident leaders would support a program for promoting balanced growth, building on a agreement reached at a G20 summit in Pittsburgh in 2009.
"I don't think this is a controversial proposition," he said.
[Source: By Rachel Armstrong and Tomasz Janowski, Reuters, Seoul, 11Nov10]
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