"While generally agreeing the G20 was a glorified photo opportunity, I don't share Jim's [Jim Cramer] cynicism about the G20 commitment to reducing budget deficits byhalf by 2013 and stabilizing debt/GDP ratios by 2016. To my recollection, this is the first time the G20, or even the G7, has given quantified targets. It also would seem to suggest that much of the difference between the US and Europe is rhetoric. Outside of the periphery, most austerity plans begin kicking in next year, not this year. And the US is not as far away as posturing indicates: 1)Obama has proposed a three-year freeze on non-security domestic appropriations, 2) a 3% deficit-to-GDP target by 2015 and 3) a bipartisan fiscal commission report due Dec 1."
- Realmoney.com, June 28, 2010.
Chandler, as always, is right on money, very balanced view. I believe this is a safe take on G20 proceedings which concluded in Toronto yesterday.
Few other thoughts about what will deeply influence shape of G20 commitments in days to come:
1. I think China will balance the over heating and they will be able to control distortions in their economy from going out of control. Till 2012 the current leadership (Hu and Wen Jiabao) is firmly in saddle. It will be only late 2011 when there could be some chance of intense internal jockeying destabilizing things. But still it is highly unlikely that the Chinese Communist Party will drop any discipline here. They will keep on marching on the same successful beat here for next few years.
2. November 2010 elections in USA will determine the course. The real fear there is Krugman scenario - GOP controlled Congress essentially hammer locking any spending and the nascent recovery is completely chocked off. Anemic growth is much more acceptable scenario here considering suicidal tendencies of GOP and Tea Party. Dems are unlikely to get the 'politics of deficit funded stimulus' right and hence there will not be any new stimulus in USA. As a result, the way out Krugman is looking for - robust growth by attacking unemployment head on - will not happen.
3. German Chancellor Merkel's future will be determined this week when new German President is selected. Overall there are lot of doubts about the durability of this Merkel government and if at all elections do get declared, that will be one more unknown here. Again the danger is not that Germany loosens spending (they have the room); but Germany would refuse to pay the ball for other profligate Europeans and by that disturbing the apple cart of Euro which is stabilizing slowly.
4. Barring some surprises, Cameron and UK government will do well. Chances of bad surprise there continues to be low.
5. Japan - whether the new PM is able to win the election and is able to bring stability, that is again another unknown. If Japanese do not get their act right, continued dropping of that shoe will be expensive to the global growth prospects.
6. Rest of G20 are not expected to bring any surprises unless Turkey goes nuts in Middle East while backing Hamas and Iran
So all in all, bit stable outlook for global economy.