BERND KAMMERER
The next event on the Group of 20 calendar is the meeting of finance ministers and central bankers in Busan, South Korea on June 4-5.
Reuters has a decent primer on what U.S. Treasury Secretary Timothy Geithner, Brazilian central bank president Henrique Meirelles and others will be discussing.
It will surprise no one to see the global bank tax on that list. Finance Minister Jim Flaherty said on a conference call from Lima on Thursday that he will seek to build support for his opposition to a tax in talks with his counterparts from Brazil, Mexico and Argentina during a meeting of finance chiefs from the Western Hemisphere. Mr. Flaherty also said on the call that his counterproposal to force banks to sell debt that would convert to equity at times of strain is gaining support and that he has circulated more information about the plan to his G20 counterparts.
According to Japanese Finance Minister Naota Kan, every finance chief's favourite issue -- currencies -- will be on the agenda But this time, the dialogue over foreign exchange rates will have a twist: it won't be entirely directed at China.
"Depending on the countries, there will be some interest in currency issues... I expect the G20 to discuss how the situation in Europe will affect currencies," Mr. Kan said at a press conference in Tokyo on Friday.
The divisions over the bank levy are nothing like the territorial aggression that comes when finance ministers start in on foreign exchange policies. And just as tensions over the Chinese currency were beginning to ease, if only slightly, the euro's slump promises to heat things up again.
The euro has fallen 7 per cent in May and almost 8 per cent this year measured against its major counterparts, according to Bloomberg News.
This is complicating the G20's efforts to smooth global economic growth.
Ahead of the financial crisis, the world economy was out of whack. American consumers were driving demand by piling on debt. China and other emerging Asian nations were all too happy to facilitate U.S. consumerism by supplying cheap stuff and buying tens of billions of dollars in Treasury bonds that had the effect of keeping consumer borrowing costs low. Many economists and policy makers said this was unsustainable, and they were right. But the financial crisis might have righted the situation, or at least created the conditions to do so. Americans are saving again. China's massive stimulus program was a significant boost to domestic demand, and the country's growing middle class is buying more of what China and other countries, especially the United States, produce. The goal of the G20's framework for sustainable growth is to lock in these conditions.
Europe used to be a bystander in this equation because the EU largely took care of itself. Indeed, its leaders would profess to have no part in the debate between the U.S. and China over currency and trade policies, arguing that Europe's economy was in balance, meaning the region imported as much as it exported. The euro's strength in recent years reflected that stability.
But Europe isn't looking so stable at the moment. Countries such as Greece and Spain will be looking to boost exports to make up for struggling domestic economies. But most of their neighbours are in much the same position, and also will be looking to boost exports. Suddenly, it's not only the U.S. that is looking to China and other emerging markets for help getting its economy back on track. How much can Asia buy? Not enough to right the world's two largest economies, especially when China and others are still intent on ensuring markets for their own industrial production.
Not everyone can export their way to recovery. Wait for accusations of European mercantilism and demands for EU officials to take more aggressive steps to shore up their currency. It could be the kind of distraction from the bank levy debate that Mr. Flaherty and other Canadian officials have been waiting for.