National Security Network

Repairing the World Economy

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Report 2 November 2011

International Economy International Economy Eurozone crisis G20

Leaders of the G20 nations, which account for 90 percent of the world economy, are set to meet in Cannes, France, this week. The summit comes at a tumultuous time for the world economy, as the European debt crisis rages on and China debates its possible role in any bailout. Challenges to global economic recovery are broader than just those facing Europe though, as President Obama wrote late last week. American action to fix problems at home, chief among them high unemployment and weak demand, is needed to spur a global response and global growth that will, in turn, lift the U.S. economy. Leadership also means looking beyond today's emergency: In order to create balanced, sustainable and equitable growth, the G20 - and Washington - must quit "careening from crisis to crisis."                                                             

Continued crisis in Europe overshadowing the G20 meeting in Cannes. Crisis is once again occupying the G20. As the Financial Times reports, despite the best-laid plans, "this week's meeting of heads of government in Cannes will be dominated by the failure of a string of mini-summits decisively to bring Europe's escalating sovereign debt crisis under control." Two main issues are animating the debate over the euro crisis:

A Greek referendum on the bailout package. As John Cassidy explains in the New Yorker, "On Monday night, the nation's Prime Minister, George Papandreou, shocked his colleagues, his countrymen, and the rest of the world by announcing he would hold a referendum on a new bailout package, which other European countries agreed upon last week as part of a broader effort to contain the continent's debt crisis. Today, markets everywhere are plunging, which is hardly surprising. Just when it seemed like there was going to be a respite from the debt crisis, albeit perhaps a temporary one, Papandreou has thrown the whole thing into question again. If the Greeks were to vote down the European rescue package, which involves yet another round of austerity measures, they would be opting for a sovereign debt default, and, in all probability, Greece's exit from the euro zone. Even if the Greeks approve the package, the markets face two months of chronic uncertainty before a vote not expected until January." [John Cassidy, 11/1/11]

Possible Chinese contributions to the bailout fund. Reuters notes, "For a fraction of the trillion euros needed to clean up Europe's debt mess, Beijing could score huge diplomatic kudos for helping end the crisis while satisfying a domestic agenda of reducing dollar dominance in world trade and further loosening its currency straitjacket. Any contribution to the rescue of the euro zone is fraught with risks -- and no sum has yet been declared -- but for many analysts the upside for China far outweighs the danger of failure. Among multiple motivations China has for contributing to a euro zone bailout -- such as supporting recovery in its single biggest export market and protecting the value of the 600 billion euros of sovereign debt in the bloc it already owns -- being hailed as the banker to the world is a strong one." An investment could risk domestic ire for Chinese leaders though, as they face "constituencies pessimistic about Europe and wary of buying its debt, something many Chinese see as a bad investment." [Reuters, 10/28/11]

[Financial Times, 11/1/11]

Euro crisis represents just one of several challenges impeding the global economic recovery - U.S. needs to lead by putting our house in order, getting back to work. As President Obama wrote in the Financial Times last week, four main challenges face the global economy. Chief among those challenges America getting back to work. CNN summarizes:

"- First, as the world's largest economy, the US will continue to lead. The single most effective thing we can do to get the global economy growing faster is to get the US economy growing faster. That's why my highest priority is putting Americans back to work. ...

- Second, the crisis in Europe must be resolved as quickly as possible. ...

- Third, each nation must do its part to ensure that global growth is balanced and sustainable so we avoid slipping into old imbalances. For some countries, this means confronting their own fiscal challenges. For countries with large surpluses, it means taking additional steps to support growth. ...

- Finally, the G20 nations must deepen co-operation on the range of global challenges that affect our shared prosperity. We need to move ahead with our commitment to phase out subsidies for fossil fuels and transition to 21st-century clean-energy economies. As we promote the development that gives nations a path out of poverty, we can focus on the infrastructure, finance and good governance that unleash growth. Even as we work to save lives from the drought and famine in the Horn of Africa, we need to continue investing in the food security and agricultural productivity that make future famines less likely and communities more self-sufficient."

[Barack Obama via CNN, 10/28/11]

G20 must move beyond fixing immediate crises to building long-term growth. "One day, it might be possible to spend most of a G20 summit discussing the long-run economic reform that the forum was originally set up to promote. This week's meeting in Cannes will not be that summit," writes the Financial Times. As the Stanley Foundation's David Shorr explains on Democracy Arsenal, G20 leaders are trying to address the underlying causes, but progress is slow: "[C]areening from crisis to crisis is no way to run the world, and G-20 leaders are keenly aware of that. This is why the group's signature agenda items are economic rebalancing and financial regulation, which are the essential underpinnings for a growing global economy. Putting it mildly, neither of these -- shifting export-based economies (China, Germany) to greater consumer spending, or reducing leverage in financial markets -- is a simple matter. This is the epitome of multilateral cooperation, leaders challenging themselves / each other to take politically difficult steps. Given the necessity of rebalancing for any sustained progress and prosperity, they have to come through on this; given the difficulty, they can't wave a magic wand." To lead other countries to make politically difficult choices, U.S. lawmakers need to act at home to put Americans back to work and grow the economy. As House Minority Leader Nancy Pelosi noted, "The world is not waiting... The world is watching to see what we do, but events will overtake us if we do not play our leadership role in the world." [Financial Times, 11/2/11. David Shorr, 10/31/11. Nancy Pelosi via Voice of America, 10/28/11]

What We're Reading

Syria said it reached an agreement with an Arab League committee tasked with ending eight months of unrest and starting a dialogue between President Bashar al Assad and his opponents.

President Hamid Karzai's plan to disband private security companies that protect billions of dollars worth of aid projects and replace them with government forces is fraught with problems and unlikely to meet the president's March deadline.

Many of the local militia leaders who helped topple Col. Muammar Qaddafi are abandoning a pledge to give up their weapons and now say they intend to preserve their autonomy and influence political decisions as "guardians of the revolution."

The Obama administration named a senior member of the Haqqani network as a specially designated global terrorist, slapping sanctions on the commander as the U.S. continues to ramp up pressure on the Pakistan-based group.

President Mahmoud Ahmadinejad acknowledged that U.S.-designed financial sanctions are causing serious problems for Iran's banking sector, as he appealed to lawmakers to keep his government together despite a massive embezzlement scandal.

Israel says it will speed up Jewish settlement construction in the West Bank and East Jerusalem - and temporarily freeze the transfer of funds to the Palestinian Authority.

Qatar will hold elections for its advisory council in 2013, the Gulf state's emir has said.

The Kenyan government said that Eritrean aircraft were delivering weapons to Islamist insurgents in southern Somalia, widening the international nature of a war that has already engulfed several African nations.

Kyrgyzstan's president-elect told the United States that its Manas airbase has to close when its lease expires in mid-2014.

Commentary of the Day

A Los Angeles Times editorial examines Palestine's use of the UN to gain recognition and how it has isolated the U.S. and Israel from the world community.

Reuters finds that Libya's National Transitional Council is struggling to maintain its credibility after the death of Qaddafi.

Gerald O'Driscoll explains why the U.S. will not be able to escape the effects of the Eurocrisis.