“Hardcore Macro Session”: Balancing the Imbalances

Folgender Beitrag entstand während des Global Economic Symposiums, das am 4. und 5. Oktober 2011 in Kiel stattfand. Alle Artikel sind auf economicinsights.eu zu finden.

The recession after the financial crisis is officially over and the economies are recovering, but there remains the danger of a double-dip recession. In order to build a more sustainable economy in the future, one issue to tackle are global imbalances. In a “hardcore macro session” a panel discussed about “Avoiding Currency Wars and Ensuring Balanced Global Recovery”.

The panel agreed upon the basic problems: Huge imbalances make the world economy even more fragile, excessive reserve accumulation worsens the problem and currency wars are counterproductive. And of course, there has to be a fiscal consolidation of the United States and European countries in the medium and long term.

What are ways out? One possibility to tackle the imbalances could be indicators that show, whether surpluses or deficits, are beyond an acceptable limit, that could threaten the global stability. Therefore it is also neccessary to find institutional mechanisms, so that the set limits don’t go up in smoke. The WTO dispute settlement could work as a role model. “But this is a tremendous difficulty.”

Another parameter that could be changed is the IMF, a possibility that was called “certainly feasible”. The first step would have to be a more credible fund, so that it is perceived as free from politics. This should increase the effectivness considerably.

When global imbalances are the topic, it is clear that sooner or later the question will be: What should China do? Appreciation of its currency, often said to be the first step to a more balanced global economy, was called „less important“. Instead, the US as well as China should expand fiscally. „But this is not on the table in the US.“ So it is China’s turn to consume more by decreasing the savings of its households and corporation. „This would make it an even bigger engine of growth“ said one of the panel participants.

The current austerity programs in Europe and the US was crititised harshly: „There is kind of a desaster in the making.“

A liquidity problem that wasn’t on the radar until the financial crisis was that European banks might need US-Dollars from the Federal Reserve, and US-banks Euros from the European Central Bank.

For me this seems a rather hard challenge. A reform of the IMF might be really possible and also neccessary in times of economic power shifts towards emerging countries. I also believe, that there could be limits installed that show if there are certain unwanted developments. But this cannot be enough. Just because somebody is outside this range doesn’t change the behaviour. Limits that are not enforced don’t make any sense, which was shown by the Stability and Growth Pact in the Eurozone.

Participants in the panel:

Domingo Cavallo, Senior Fellow and Lecturer in Global Affairs, Jackson Institute for International Relations, Yale University

Carlos Cozendey, Ambassador, Ministry of Finance

Anne O. Krueger, Professor of International Economics, SAIS, Johns Hopkins University; Senior Fellow, Stanford Center for International Development

Maurice Obstfeld, Professor of Economics, University of California, Berkeley

Ibrahima M. Turhan, Deputy Governor, Central Bank of Turkey


Wolfgang Munchau, Co-Founder and President, Eurointelligence; Associate Editor, Financial Times

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