The G20 aren't running to Europe's rescue


It looks as though the shakedown failed. France could not persuade the rest of the G20 to commit hard numbers to providing a bigger financial safety net for the eurozone - or anyone else who might need it.

A senior US official has just explained the lack of numbers in today's final G20 communique, in the crucial bit about the global tools available for responding to future crises.

The tool that had been talked up most aggressively was the idea of another special allocation of IMF Special Drawing Rights - in effect, free money for International Monetary Fund (IMF) members. China and France supported this, but America was against. (Interestingly, Germany was against this particular proposal too. It seems they don't like the IMF printing money for governments any more than they like the European Central Bank doing it.)

Here's what the official said: "We're talking about Europe - this is about the future of Europe. And the Europeans recognise more than anyone else that their future is in their hands." He said that Europe had the resources and tools to do this, and the tools being talked about at a global level were simply reinforcement: "They are complements, not substitutes."

Asked whether other countries would be contributing to Europe's "firewall", he said: "Don't think about it as Europe's firewall. Europe's firewall is primarily about Europe. As we saw at the start of 2009, this is about wanting to make sure we're prepared and ready, if that makes sense, if global action is needed." But, he added, the priority was for the Europeans to act.

So, the G20 has concluded that it's up to the Europeans to fix this. The rest of the world needs to see more progress on the European rescue plan sketched out last week in Brussels before they commit any hard numbers. If they ever do.

That's one of the big stories out of Cannes - which perhaps would not have surprised anyone a week ago, before the great dramas which erupted in Athens.

But let's not forget that two crucial taboos have been broken in the past few days.

European leaders have publicly contemplated the possibility that a country might leave the euro. And they have included in the same sentence the words "IMF" and "Italy".

Taboos get created out of a natural human superstition: that bad things become more likely once you utter them out loud. The Europeans have to hope the financial markets aren't superstitious.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 118.

    Reserve requirements should limit the power of banks to inflate bubbles. It's possible to change the system to allow them to work in the way they're supposed to.

    The article @11 creates a false dichotomy between machine and biology. The monetary system is a machine. The economy mimics biology. The economy is a process of capital accumulation whereas money is a system of exchange.

  • rate this

    Comment number 117.

    Charles Jurcich @ 95
    I read the link. I still think it's possible for central banks to control quantity of money via reserves with the correct accounting periods, central bank rules, etc. There are more fundamental issues. I'm not convinced that quantity of money is an effective control. A global concept of price seems meaningless when prices are rising and falling at the same time.

  • rate this

    Comment number 116.

    108. IGU

    I think you should not blame fractional reserve banking per se, but rather the way that it has been managed by those who we gave the task of managing it & yes I am returning to my theme of Mervyn King should be fired.

    One purpose of interest rates is to control the price of money to manage its supply - the half-educated economists seem to have forgotten this & so created the crash!

  • rate this

    Comment number 115.

    110. TP

    I agree with you that there is democratic void at the heart of our Europe. The 'demos' has been usurped by the state leaders when it should be the people themselves who are enfranchised by universal suffrage.

    Give us our Europe! Cameron, Sarkozy, Merkel etc have made a dire hash of it so let the 500 million Europeans choose & speak for themselves let us directly elect our President.

  • rate this

    Comment number 114.

    @ 58.R J Evans

    A little confused as to how you seem to know the nationality of everyone on here, and how you feel able to comment on behalf of the entire people of three different nations, could you possibly explain for me?


Comments 5 of 118



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