G20 leaders fail to agree on measures to prevent 'tapering' turmoil

Worry is not of another financial crisis but of slow growth in some nations

PUBLISHED : Friday, 06 September, 2013, 12:00am
UPDATED : Friday, 06 September, 2013, 4:16am

Emerging and developed G20 powers struggled to find common ground yesterday over the turmoil unleashed by the prospect of the United States reducing a flood of dollars to the world economy.

The Group of 20, which took the lead in responding to economic crisis in 2009, is now at odds as the US recovery gains pace, Europe lags and developing economies face blowback from the looming 'taper' of US monetary stimulus.

"Our main task is returning the global economy towards steady and balanced growth. This task has unfortunately not been resolved," Russian President Vladimir Putin told leaders as they met at an annual summit in St Petersburg.

"Therefore systemic risks, the conditions for an acute crisis relapse, persist," Putin said.

Departing from his prepared remarks, Putin avoided explicitly referring to risks arising from US monetary policy. But the message from the BRICS caucus of emerging markets, which met earlier, was unmistakably aimed at Washington.

China, often reticent on the international stage, urged Washington to be "mindful of the spillover effects and work to contribute to the stability of the global financial markets and the steady recovery of the global economy".

Deputy Finance Minister Zhu Guangyao pressed Europe to do more to revive economic growth, which has started to pick up after a sovereign debt crisis in the peripheral countries of the euro zone.

"The structural problems are far from solved and now is no time to be arrogant," Zhu told reporters.

The Fed is widely expected this month to take a first step to reduce the extraordinary monetary stimulus - a move amply justified by the state of its recovery but with potentially huge implications for a global financial system that has come to depend on a cheap and abundant supply of dollars.

Advanced economies led by the United States will drive global growth while emerging countries are at risk of slowing due to tighter US monetary policy, the International Monetary Fund warned in a pre-summit briefing paper.

Loose monetary policy must be adjusted step by step without causing economic disruptions, German Chancellor Angela Merkel said on the G20 sidelines, after the European Central Bank left policy on hold yesterday. The ECB said it was ready to cut interest rates or pump more money into the euro zone economy to bring money market rates down and help the recovery.

The high debt burden piled up by the industrialised West has also driven calls from other members of the G20 - which accounts for 90 per cent of the world economy and two-thirds of its population - to get borrowing down. "A common understanding of the necessity to find an optimal balance between fiscal consolidation and support of growth has emerged in hot discussions," said Putin, hinting at behind-the-scenes clashes.

Canadian Prime Minister Stephen Harper said he would seek to balance his budget by 2015 as he seeks to boost investment and growth.

Leaders were expected to sign off on a series of initiatives intended to fight cross-border tax evasion, strengthen financial oversight and streamline regulation of derivatives that could trigger another financial meltdown.