You have to ask what wonderful world does Timothy Geithner think he lives in. In a document leaked from the G20 summit meeting in Seoul, the U.S. has proposed a grand global trade balancing plan in which big exporting surplus countries, such as Japan, Germany and China will agree to adopt fiscal and currency policies that would stimulate domestic demand while deficit countries, such as the United States, would take budgetary measures to curb their fiscal and trade deficits and boost exports. The U.S. has even suggested a target such that no G20 country's trade deficit or surplus should exceed 4 per cent of GDP.
At the same time G20 members would refrain from competitive currency devaluations aimed at securing export trade advantage. In other words, end the currency cold war, exactly what they are not doing at the moment. Clearly, the U.S. has concluded that it will never persuade China to agree to let the yuan ride high above the dollar.
Instead of continuing the argument of the deaf, the solution, then, is to corral a disparate group of some of the world's more powerful economies with sharply diverging interests on to a sort of trade see-saw. The U.S. thinks it will then convince these nations that it is not only desirable, but possible, to manage their current accounts into a carefully calibrated balance of trade in goods and services across the globe.
China is not saying much about this but is not opposing it outright, presumably because Beijing would rather chase an unachieveable goal to balance world trade than agree to revalue the yuan. Germany and Japan are saying - no way. You can't manage trade balances as if they were some sort of national budget. Trade is not what governments do, but what people and companies at large do - buying and selling stuff.
Even the fiscal balancing is tough. If Mr Geithner still suffers from the delusion that he has a remote chance of enforcing this 4 per cent trade balancing formula, he should take a look at what happened in Europe this week when German chancellor Angela Merkel sought to corral the Club Med states of France, Italy, Spain and Greece into agreeing to automatic punishments for states that run excessive fiscal deficits. Germany backed the European Commission's proposal that states that exceed the EU stability and growth pact rule that no state's fiscal deficit should exceed per cent of GDP would be subject to automatic fines. Instead there will be a vote in the European Council over the need to impose a fine. That ensures that the normal horse-trading of EU policy will prevail and not state will ever be fined for flirting with bankruptcy, like Greece.
It was the usual showdownn between the northern states of Germany, Sweden, Finland and the Netherlands versus the Club Med, but if Ms. Merkel had any illusions about securing her desired outcome, she need only have looked at the TV images of riot police fighting strikers outside French refineries. If a proposal to raise the minimum retirement age from 60 to 62 can bring France to a standstill, it begs the question of what might happen in some not too distant future when Brussels seeks to fine a near bankrupt France for playing fast and loose with government borrowing. There is no EU army that might intervene to restore order.