Sunday, February 20, 2011

G20 summit - a very small baby step (of sorts!)

The latest G20 Summit has managed to reach consensus on - hold thy breath - the indicators which will be tracked to measure global economic imbalances! It seems public debt, fiscal deficit, private debt and current account deficit will be used to track the state of imbalance. No points for innovation there! Sarcasm aside, this is a start, however small it might be. Hopefully it would least get the world leaders to start to have some faith in dealing with economic imbalances in a multilateral manner.
As Dominique Strauss Kahn is rightly worried, the belief that the worst has passed in terms of global financial and economic crisis has made many governments too complacent to invest energy into the tedious and circuitous processes and rounds of multilateral efforts to deal with the imbalances. The worry is not alarmist. The shock has passed, the crisis has not. Recovery in emerging economies and reaction of developed economies to a unprecedented stimulus is not a sure sign of long lasting global economic recovery. It is not that things will come to the same scary pass again in a short while. However, one should not see the crisis as a one-off shock which came and went after everyone scrambled together to deal with it. It happened due to some fundamental reasons - including the global economic imbalances - which are not yet fully gone away. The next crisis may not be as severe. It may just sap the vitality of global economy over a decade. That is the scary part. It is not shocking scary, it is just scary when one puts everything down in detail. Unfortunately humanity is not known to respond very well to such subtle - even if highly potent - threats!

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