Still in crisis

A few weeks change everything. In the April meeting of the G-20,it was reiterated that governments should keep up support for their economies until the recovery was “firmly entrenched.” Since then two things have happened: a debt crisis in Greece that caused everyone to look worriedly at the levels of government debt in Europe,and a general election in the United Kingdom. Thanks to these two things,in this weekend’s meeting of central bank governors and finance ministers of the G-20 countries in Busan,South Korea,it became evident that the enviable unity that had marked the G-20 in the months following the crisis was a thing of the past.

The European members of the G-20,nervous about their debt,argued for an exit from expansionary policy. Had Gordon Brown still been prime minister of Britain,they might well have lost the argument; Brown believed in firm steps to ensure recovery,and in firm arguments to back his beliefs,and led the G-20 into consensus more often than not. The new Tory-Lib Dem dispensation in Whitehall isn’t quite so committed to international recovery: they’re more concerned about how to push through the spending cuts their economic philosophy requires. “The new British government has contributed to changing the tone at the G20 and making sure we’re focused on these issues of countries with high deficits,” Chancellor Osborne told the press. What this means is co-ordination would require exiting from stimulus now,lest government debt around the world come under pressure. But economists,particularly in the US,are gloomy about what that would cause: they warn of a “double-dip” recession. Indeed,the possibility that the US economy will see low or negative growth in the third quarter of this year is being touted as a real possibility.

That means that while exit might be essential — and this newspaper has argued that for the Indian government,most stimulus measures need to be rolled back now — doing so precipitously,as some in Whitehall or on the continent might prefer,would be massively counter-productive. Finance Minister Pranab Mukherjee said as much in his remarks after the Busan meeting. A “staggered” exit,he said,would be required. Indeed,Osborne and company should know: much more important than actually exiting immediately from expansionary policy is setting out a credible path to reduce public expenditure. Meanwhile,agreement on other policies — such as on a co-ordinated bank levy — fell by the wayside. The crisis isn’t over yet. But interests appear to have diverged sufficiently that the co-ordination that marked the world’s response seems to have come to an end.