The Big Read: G20 gets indigestion
IT'S Wednesday, so it must be time for another international summit.
Gathered in the Mexican seaside resort of Los Cabos, G20 leaders will already be wondering why they have made the trip. Nothing is promised from this latest piece of international junketing, other than a little Mexican levity and a nasty bout of indigestion, courtesy of the spicy food. Let's hope leaders have brought their anti-reflux medication with them; in more ways than one, they are going to need it.
Few G20 meetings are anything other than a waste of space, but this one more so than most, because the latest slowdown in the world economy can be dealt with convincingly only by Europe. And as we already know, Europe is seemingly incapable of sorting out the hopeless muddle it has inflicted on itself.
Angela Merkel, the German chancellor, has welcomed the outcome of the Greek election, but it must have been through gritted teeth. In fact, New Democracy's narrow victory is the worst possible outcome for Berlin.
The choice made by Greeks was not about being in or out of the euro, but between the outright confrontation pledged by the radical left and the guerrilla warfare of renegotiation of bail-out terms promised by New Democracy leader Antonis Samaras. This is scarcely going to help matters from a German perspective.
Many policymakers in Berlin and Frankfurt were privately hoping for a confrontational outcome. If the Greeks had voted for defenestration, it would at least have brought matters to a head and focused minds on saving the rest of the eurozone. As it is, the misery of Greece's membership persists, a kind of death by 1000 cuts, rather than the short, sharp execution that would have followed the election of Greece's motorcycling Marxist, Alexis Tsipras. Berlin had hoped to cut the millstone of Greece loose; unhappily for Germany, it remains.
This has, in turn, focused attention back on the real epicentre of the crisis - Spain and Italy, for which Greece is no more than a "mise en bouche".
With spreads on Spanish bonds now higher than those of Ireland, a fully fledged sovereign rescue - as opposed to the misjudged bailout-lite of last week's à100-billion for bank recapitalisation - can only be weeks away.
Can Europe afford such a rescue? If London City's estimates of a bail-out package worth about à300-billion, on top of the à100-billion already agreed for the banks, are correct, then possibly, just about.
Assuming about half the money is put up by the International Monetary Fund, the European Financial Stability Fund has just about sufficient to cope. But if, as seems likely, Italy follows close behind, then it's going to be blown away.
In any case, it's not clear that the European Financial Stability Fund and its successor body, the European Stability Mechanism (please do try to keep up here), could actually fund these bailouts in the markets. There comes a point where even the cross guarantees of other, more solvent, eurozone participants are insufficient to make the markets lend.
As it is, we are faced with the logical absurdity of Italy helping to cross guarantee the funds for a Spanish bailout from a facility it may soon have to draw on itself. Any publisher presented with such a ridiculous plot would bin the whole thing as too incredible even for fiction.
One possible solution to these contortions would be for the European Central Bank to relieve the pressure with heavy purchases of sovereign bonds, acting, as any other central bank would in these circumstances, as lender of last resort. This is the straw du jour that everyone is now clutching at.
But still fixated by the Maginot Line of inflation, the European Central Bank will for the time being have no truck with such supposed sovereign debt monetisation.
Meanwhile, the central bank's president, Mario Draghi, spends his time working away on a "road map" for fiscal and political union in the hope that, once markets see a blueprint for eventual debt mutualisation, they will calm down and the crisis will abate. A bank president who by day says he cannot perform a fiscal function is by night actively engaged in trying to design the mother of all fiscal solutions. Again, it would be hard to make up this stuff.
With Europe threatening to derail his plans for re-election, US President Barack Obama is in an increasingly desperate mood. Sort it out, says an ever more impatient G20, but no answer comes. To Americans, the solution is simple. Put enough money on the table, and the crisis will go away.
Germans would rather go down in flames than be made liable for somebody else's debts. The Americans don't seem to understand this.
For examples of the abject failure of international cooperation to find solutions, look no further than the G20 itself. A great concept in theory, which seeks to engage the developing world in the idea of global governance, the G20 has turned out to be a hopeless organisation, capable of deciding little and implementing even less.
In Los Gabos on Monday, British Prime Minister David Cameron claimed the G20 had at least stopped a slide to protectionism. It has not. The latest analysis by Global Trade Alert shows that protectionist measures are once again strongly on the rise as the global economy weakens, the bulk of it among G20 nations.
If the G20 cannot keep its promises even on the relatively simple matter of open and transparent trade, what hope for more complex forms of international cooperation such as burden sharing and sustainable growth strategies?
There can be no action, it seems, until the world is once again tumbling down the precipice. By then it will be too late. As they say in Mexico - carajo! - ©The Daily Telegraph