G20 Exposes Rift as Every Country wants to Export their way out of Trouble

The G20 Meeting between the Financial Heads of the the G-20 Countries exposed the rift between the world’s 20 most important economies.The issue of fiscal deficits,exports and currencies were at the forefront of discussions .The sharpest difference was between US which wants Europe and other developed countries to increase domestic demand and the European countries which are advocating smaller fiscal deficits which would lead to a decrease in demand.Everyone is banking on Exports to solve their problems which is impossible in the face of shrinking developed world demand.Europe is suddenly finding a silver lining in the Greek Contagion with the 20% weakening of the Euro boosting exports and tourism.However this situation is not favorable for the USA as President Obama wants to double exports in the next 5 years.China is also facing pressure from the Euro weakening which makes it companies uncompetitive in its main export market.Germany has already started implementing the European position through Budget cuts at a time .

The main issue remains the distorted global balance picture with Japan,China and Germany running unsustainable high surpluses and countries like USA,Spain and Italy running huge fiscal deficits.The volatile currencies and commodity prices reflect this dangerous imbalances which the G-20 is evading.Compared to the last G-20 Meeting at London in 2009 which resulted in a Consensus for increasing Government Stimulus , this one has been a complete contrast.The consequence of such a Meeting might herald  a dangerous result in the form of Trade Wars through explicit/implicit restrictions on imports.

G-20 Coordination Fails as Governments Clash on Recovery Recipe – Bloomberg

Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.

At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand. European Central Bank President Jean-Claude Trichet said fiscal tightening in “old industrialized economies” would aid the expansion by shoring up investor confidence.

Each strategy carries threats for the global rebound that the G-20 said faces “significant challenges.” Continued stimulus risks bondholder revolt over rising debt burdens, while spending cutbacks could worsen unemployment. Relying on exports leaves the world prone to trade wars and competitive currency devaluations as countries seek to give their companies an edge.

G-20 officials signaled deeper concern about the economic and fiscal outlooks than when they last met in April. In a statement released after their talks ended June 5, they promised to “safeguard recovery,” yet replaced an endorsement of budget stimulus with a pledge to pursue “credible, growth-friendly measures to deliver fiscal sustainability.” Countries can still fan domestic growth “within their capacity,” they said.