Global imbalances could worsen: ECB

ECB policymakers warned global central bankers on Friday that economic imbalances could worsen fast unless the G20 makes a concerted push to tackle them.

Axel Weber,soon to quit as head of Germany’s Bundesbank,told a meeting of the US,euro zone and Asian policymakers that IMF forecasts pointed to renewed divergences in current account positions and that the surge in oil prices since unrest broke out across North Africa would accelerate this. ECB governing council member Mario Draghi added that global mismatches would remain a problem for long time to come.

Imbalances between wealthy and emerging nations are proving one of the biggest headaches for policymakers striving to repair the world economy.

Current account surpluses have returned or are currently returning to pre-crisis levels and I think this will be sped up by the fact that the recent hike in oil prices might accelerate,Weber said.

Draghi told the meeting: These imbalances will stay with us for a long,long time.

What we need then is to make sure that capital markets function to finance these imbalances … because we know they are not exactly efficient,so we need rules,we need a resilient financial system.

They were addressing a dozen global policymakers who joined academics and businessmen under the banner of France’s Group of 20 presidency to discuss imbalances,regulation,inflation and other topics. The finance ministers of the world’s major economies succeeded only in reaching a fudged accord on how to measure global imbalances after China prevented the use of exchange rates and currency reserves as indicators. We have to embark on mechanisms to deal with these current account problems .

Regulation,inflation hot topics

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Friday’s gathering came a day after the European Central Bank said it could soon raise interest rates,heightening concerns about the implications for struggling euro zone countries as EU leaders strive to resolve the debt crisis. ECB board member Lorenzo Bini Smaghi said the world had a tendency to systematically underestimate inflation and overestimate growth in developed economies. If we look at the past at the kind of forecast errors which have been done and here I look at the IMF forecast errors … we have systematically underestimated inflation and overestimated growth in advanced economies,he said.

China and other Asian and Latin American economies are resisting pressure from Washington and Europe to raise their interest rates to curb signs of overheating in their economies and allow their currencies to appreciate.